<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 16, 1998
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended September 30, 1998
COMMISSION FILE NUMBER
333-49397
FOCAL COMMUNICATIONS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-4167094
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NUMBER)
200 N. LASALLE STREET
SUITE 800
CHICAGO, IL 60601
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(312) 895-8400
(REGISTRANT'S TELEPHONE NUMBER)
----------------
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or required for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days:
YES X NO
The number of shares outstanding of the issuer's common stock, as of
September 30, 1998:
COMMON STOCK ($.01 PAR VALUE) ..... 97,307
SHARES
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Operations -- Three months ended
September 30, 1998 and 1997, and the Nine months ended September
30, 1998 and 1997............................................... 3
Consolidated Balance Sheets-- September 30, 1998 and December 31,
1997............................................................ 4
Consolidated Statements of Cash Flows -- Nine months ended
September 30, 1998 and 1997..................................... 5
Condensed Notes to Unaudited Interim Consolidated Financial
Statements...................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk....... 15
PART II--OTHER INFORMATION
Item 1. Legal Proceedings................................................ 16
Item 6. Exhibits and Reports on Form 8-K................................. 16
SIGNATURES................................................................ 17
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FOCAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
----------------------- ------------------------
1998 1997 1998 1997
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES................... $12,755,293 $1,226,077 $25,935,784 $ 1,312,984
EXPENSES:
Customer service and
network operations...... 4,432,861 760,847 9,046,809 1,029,566
Selling, general and
administrative.......... 3,973,719 747,102 7,245,504 1,725,942
Depreciation and
amortization............ 1,907,601 179,512 3,913,870 272,070
Non-cash compensation
expense................. 2,022,144 325,000 2,672,144 975,000
----------- ---------- ----------- -----------
Total operating
expenses.............. 12,336,325 2,012,461 22,878,327 4,002,578
----------- ---------- ----------- -----------
Operating Income
(Loss)................ 418,968 (786,384) 3,057,457 (2,689,594)
----------- ---------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income.......... 1,801,116 43,143 4,881,831 142,082
Interest expense......... (4,676,705) (22,314) (11,320,499) (26,011)
----------- ---------- ----------- -----------
Total Other Income
(Expense)............... (2,875,589) 20,829 (6,438,668) 116,071
----------- ---------- ----------- -----------
Loss before income
taxes................... (2,456,621) (765,555) (3,381,211) (2,573,523)
Provision for income
tax..................... (2,197,096) -- (2,197,096) --
----------- ---------- ----------- -----------
NET LOSS................... $(4,653,717) $ (765,555) $(5,578,307) $(2,573,523)
----------- ---------- ----------- -----------
ACCRETION TO REDEMPTION
VALUE OF CLASS A COMMON
STOCK..................... -- (25,890) -- (77,670)
----------- ---------- ----------- -----------
NET LOSS APPLICABLE TO
COMMON STOCKHOLDERS....... $(4,653,717) $ (791,445) $(5,578,307) $(2,651,193)
=========== ========== =========== ===========
BASIC AND DILUTED NET LOSS
PER SHARE OF COMMON
STOCK..................... $ (52.73) $ (9.39) $ (63.18) $ (31.60)
=========== ========== =========== ===========
</TABLE>
3
<PAGE>
FOCAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............... $ 123,699,853 $ 2,256,552
Accounts receivable, trade (net of
allowance for doubtful accounts of
$469,000 and $1,687,706 at December 31,
1997 and
September 30, 1998, respectively)...... 12,273,735 2,355,814
Related-party receivables............... -- 34,883
Other current assets.................... 786,736 90,559
------------- -----------
Total current assets.................. 136,760,324 4,737,808
------------- -----------
FIXED ASSETS, at cost:.................... 54,842,034 11,793,741
Less--Accumulated depreciation and
Amortization........................... 3,686,097 616,967
------------- -----------
Fixed assets, net..................... 51,155,937 11,176,774
Other Non-Current Assets (net).......... 5,289,845 --
------------- -----------
$ 193,206,106 $15,914,582
============= ===========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Accounts payable........................ $ 8,383,999 $ 1,502,479
Accrued liabilities..................... 1,885,548 367,890
Current maturities of long-term debt.... -- 943,621
------------- -----------
Total current liabilities............. 10,269,547 2,813,990
LONG-TERM DEBT, net of current
maturities............................... 161,294,032 2,593,265
------------- -----------
OTHER NONCURRENT LIABILITIES.............. 420,845 179,481
------------- -----------
REDEEMABLE COMMON STOCK:
Class A, $.01 par value, 85,567 shares
authorized and 80,307 issued and
outstanding at December 31, 1997....... -- 12,403,218
------------- -----------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, Class A, $.01 par value,
85,567 shares authorized and 75,307
issued and outstanding at September 30,
1998................................... 753 --
Common stock, Class B, $.01 par value;
35,000 shares authorized, 20,000 and
22,000 shares issued at December 31,
1997 and September 30, 1998............ 220 200
Common stock, Class C, $.01 par value;
15,000 shares authorized, 14,711 shares
issued at December 31, 1997 and none
issued at September 30, 1998........... -- 147
Additional paid-in capital.............. 35,313,345 5,096,435
Deferred compensation................... (5,133,842) (3,791,667)
Accumulated deficit..................... (8,958,794) (3,380,487)
------------- -----------
Total stockholders' equity (deficit).. 21,221,682 (2,075,372)
------------- -----------
$ 193,206,106 $15,914,582
============= ===========
</TABLE>
4
<PAGE>
FOCAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR NINE MONTHS ENDED
SEPTEMBER 30
-------------------------
1998 1997
------------ -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss........................................... $ (5,578,307) $(2,573,523)
Adjustments to reconcile net loss to net cash pro-
vided by (used in) operating activities-
Depreciation and amortization.................... 3,913,870 272,070
Deferred lease costs............................. 241,363 89,741.00
Deferred compensation............................ 2,672,144 975,000
Amortization of discount on Senior Discount
Notes........................................... 11,266,426 --
Provision for losses on accounts receivable...... 1,219,144 144,004
Changes in operating assets and liabilities-
Accounts receivable............................ (11,137,064) (1,029,178)
Related-party receivables...................... 34,883 16,883
Other assets................................... (700,665) (164,473)
Accounts payable and accrued liabilities....... 8,399,178 623,293
------------ -----------
Net cash provided by(used in) operating
activities.................................. 10,330,972 (1,646,183)
------------ -----------
Cash Flows From Investing Activities:
Capital expenditures............................. (43,048,293) (8,037,336)
------------ -----------
Net cash used in investing activities........ (43,048,293) (8,037,336)
------------ -----------
Cash Flow From Financing Activities:
Proceeds from issuance of long-term debt(net).... 143,897,508 3,065,948
Payments on bank credit facility and capital
leases.......................................... (3,536,886) (12,062)
Proceeds from class A common capital
contributions................................... 13,800,000 4,275,000
------------ -----------
Net cash provided by financing activities.... 154,160,622 7,328,886
------------ -----------
Net Increase(Decrease) In Cash And Cash
Equivalents....................................... 121,443,301 (2,354,633)
Cash And Cash Equivalents, beginning of period..... 2,256,552 3,790,121
------------ -----------
Cash And Cash Equivalents, end of period........... $123,699,853 $ 1,435,488
============ ===========
</TABLE>
5
<PAGE>
FOCAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements reflect
all adjustments, consisting of normal recurring accruals, which management
believes are necessary to present fairly the financial position, results of
operations, and cash flows for Focal Communications Corporation and
Subsidiaries (the "Company") for the respective periods presented. Certain
information and footnote disclosures normally included in the annual financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission for Form 10-Q. These
unaudited interim consolidated financial statements should be read in
conjunction with the audited financial statements and the notes thereto
included in Amendment No. 4 to the Registration Statement on Form S-4 (File
No. 333-49397) filed by the Company with the Securities and Exchange
Commission on August 13, 1998, and Form 8-K filed on November 13, 1998
revising the calculation of basic and diluted net loss per share of common
stock contained in the financial statements set forth in such Form S-4. The
consolidated balance sheet at December 31, 1997 included herein was derived
from audited consolidated financial statements, but does not include all
disclosures required under generally accepted accounting principles.
2. CASH AND CASH EQUIVALENTS
Cash and Cash Equivalents (stated at cost which approximates market) consist
principally of highly liquid investments, with a maturity date of three months
and less when purchased.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
30, 31,
1998 1997
----------- -----------
<S> <C> <C>
Communications Network........................... $28,307,358 $ 7,906,336
Construction in progress......................... 15,682,055 1,938,236
Computer Equipment............................... 2,359,396 941,237
Leasehold Improvements........................... 4,941,697 652,173
Buildings........................................ 2,350,000
Furniture and fixtures........................... 1,182,102 355,759
Motor vehicles................................... 19,427 --
----------- -----------
$54,842,034 $11,793,741
=========== ===========
</TABLE>
4. DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER
1998 31, 1997
------------- -----------
<S> <C> <C>
Credit facility with bank, maximum borrowing
level at $6,000,000........................... $ -- $ 3,480,972
12.125% senior discount notes due 2008, net of
unamortized Discount of $108,705,968.......... 161,294,032 --
Capital leases on equipment with interest at
14.66%, $2,327 due Monthly through April,
2000.......................................... -- 55,914
------------- -----------
161,294,032 3,536,886
Less--current maturities....................... -- 943,621
------------- -----------
$ 161,294,032 $ 2,593,265
============= ===========
</TABLE>
6
<PAGE>
FOCAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS--
(CONTINUED)
In February 1998 the Company completed its offering of $270 million stated
principal amount at maturity of its 12.125% senior discount notes due 2008
(the "Notes"), which resulted in gross proceeds of $150,027,606. The Notes
bear interest at an effective rate of 12.125 % per annum (computed on a
semiannual bond equivalent basis). In the period prior to February 15, 2003,
interest will accrue (calculated under the effective rate method) but will not
be payable in cash. From February 15, 2003, interest on the stated principal
amount at maturity of the Notes will be payable in cash semi-annually on
August 15 and February 15 of each year, beginning on August 15, 2003.
The Notes are senior unsecured obligations of the Company ranking pari passu
in right of payment with all other existing and future senior indebtedness of
the Company, if any, and will rank senior in right of payment to all existing
and future subordinated indebtedness of the Company, if any. Holders of
secured indebtedness of the Company, however, will have claims with respect to
the assets securing such other indebtedness that are prior to the claims of
the holders of the Notes. The Notes will be effectively subordinated to all
existing and future indebtedness and other liabilities of the Company's
subsidiaries (including trade payables).
The Notes are redeemable, at the Company's option, in whole or in part, at
any time or from time to time, on or after February 15, 2003, at 106.063% of
their stated principal amount at maturity, plus accrued and unpaid Current
Interest, declining ratably to 100% of their stated principal amount at
maturity, plus accrued and unpaid Current Interest, on or after February 15,
2006. In addition, at any time and from time to time, prior to February 15,
2001, the Company may redeem in the aggregate up to 35% of the original
aggregate stated principal amount at maturity of the Notes with the proceeds
from one or more public equity offerings following which there is a public
market, at a redemption price (expressed as a percentage of accreted value on
the redemption date) of 112.125%, plus current interest, if any; provided that
at least 65% of the original aggregate stated principal amount at maturity of
the Notes remains outstanding after each such redemption.
The indenture for the Notes contains certain covenants which, among other
things, restrict the ability of the Company and certain of its subsidiaries to
incur additional indebtedness (and, in the case of certain subsidiaries, issue
preferred stock), pay dividends or make distributions in respect of the
Company's or such subsidiaries' capital stock, make other restricted payments,
enter into sale and leaseback transactions, incur liens, cause encumbrances or
restrictions to exist on the ability of certain subsidiaries to pay dividends
or make distributions in respect of their capital stock, issue and sell
capital stock of certain subsidiaries, enter into transactions with
affiliates, sell assets, or amalgamate, consolidate, merge or sell or
otherwise dispose of all or substantially all of their property and assets.
These covenants are subject to important exceptions and qualifications.
The Company completed an Exchange Offer for the Notes on September 16, 1998,
which allowed holders to exchange existing Notes for 12.125% Senior Discount
Notes due 2008, Series B, which have been registered with the Securities and
Exchange Commission. The terms of the Series B Notes are identical in all
material respects with the terms of the existing senior discount notes.
5. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share". SFAS
No. 128 changed the methodology of calculating earnings per share and renamed
the two calculations to basic earnings per share and diluted earnings per
share. The Company adopted SFAS No. 128 in January 1998 and has retroactively
restated all periods presented. Basic earnings per common share are based on
the average quarterly weighted average number of shares of common stock
outstanding. This calculation includes all Class A shares and the vested
portion of the Class B shares. Diluted earnings per common share are adjusted
for the assumed exercise of dilutive stock options. Since the adjustments
required for the calculation of diluted weighted average common shares
outstanding are anti-dilutive,
7
<PAGE>
FOCAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS--
(CONTINUED)
this calculation has been excluded from the loss per share calculation for the
three month and nine month periods ended September 30, 1998, and September 30,
1997. Under the requirements of SFAS No. 128 the Company's basic and diluted
weighted average number of shares outstanding at September 30, 1998 and 1997
is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------- -------------
<S> <C> <C>
Basic Weighted Average Number of Common
Shares Outstanding......................... 88,257 84,307
Dilutive Stock Options and unvested Class B
common stock............................... 15,607 16,068
------- -------
Dilutive Weighted Average Number of Common
Shares Outstanding......................... 103,864 100,375
======= =======
</TABLE>
Diluted weighted average common shares outstanding are anti-dilutive and
have been excluded from the loss per share calculation for the three month
period ended September 30, 1998.
6. COMMITMENTS AND CONTINGENCIES
Under the terms of various short and long-term contracts, the Company is
obligated to pay office rents and rent for leasing fiber optic transmission
facilities. The Company is obligated to pay office rents through 2012. The
office rent contracts provide for certain scheduled increases and for possible
escalation of basic rentals based on a change in the cost of living or on
other factors. The Company expects to enter into other contracts for
additional office space, other facilities, equipment and maintenance services
in the future.
A summary of such fixed commitments at September 30, 1998 is as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- -----------
<S> <C>
1998......................... $ 636,883
1999......................... 2,829,287
2000......................... 2,879,706
2001......................... 2,818,704
2002......................... 2,918,177
Thereafter................... 20,903,924
-----------
$32,986,681
===========
</TABLE>
The Company has recorded accounts receivable totaling $10.2 million as of
September 30, 1998 from another carrier who is currently disputing its
obligations to the Company. This dispute was ruled on in favor of the Company
by the Illinois Commerce Commission ("ICC") in March of 1998. The other
carrier appealed the ICC ruling to the United States District Court for the
Northern District of Illinois. The District Court rendered a decision on July
21, 1998 affirming the ICC order. Ameritech appealed the decision to the 7th
Circuit Court of Appeals, and was denied a stay pending appeal. As of
September 30, 1998 the District Court stay had expired and the other carrier
was in violation of the order. Subsequently, Ameritech Illinois complied with
the order and commenced payment for past reciprocal compensation charges.
During October 1998, the Company received substantially all of the disputed
amount from the other carrier.
In July 1998 Ameritech filed a complaint with the ICC alleging that Focal's
Virtual Office service violates the interconnection agreement between
Ameritech and the Company and certain state statutes. Ameritech also alleged
that through its Virtual Office service, Focal is contributing to the
exhaustion of phone numbers in the 847 area code. Ameritech complained that
calls on Focal's Virtual Office network are circumventing local toll charges,
and should not be subject to reciprocal compensation. Ameritech also alleged
that the Company is offering service in violation of the state's pay-per-call
rules. The Company believes that these claims lack merit. Nevertheless, an
adverse outcome in this dispute could have a material adverse effect on the
Company.
8
<PAGE>
FOCAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS--
(CONTINUED)
In the ordinary course of business, the Company is involved in various other
regulatory matters, proceedings and claims, the outcome of which management
does not believe will have a materially adverse effect on the Company's
financial position, results of operations or cash flows.
7. STOCK OPTIONS
The Company established the Focal Communications Corporation 1997 Non-
Qualified Stock Option Plan (the "1997 Plan") effective February 27, 1997. The
1997 Plan is administered by the compensation committee of the Company's Board
of Directors (the "Board"). The Board has sole and complete authority to
select participants and grant options for Company's Class A common shares
which shall not exceed 5,260 shares, as defined in the plan. On August 21,
1998 the 1997 Plan was amended and the Board increased the number of shares
available for issuance under the 1997 Plan to up to 17,060.
The Company adopted the Focal Communications Corporation 1998 Equity and
Performance Incentive Plan (the "1998 Plan") on August 21, 1998. The Board has
sole and complete authority to select participants and grant options, and
other equity based instruments for Company's Class A common shares. The total
number of shares authorized for issuance pursuant to the 1998 Plan shall not
exceed 11,500 shares, and is dependent upon, among other things, the number of
shares issued, or reserved for issuance, under the 1997 Plan prior to the
consummation of an initial public offering of the Company.
On August 21, 1998, the Company also adopted the 1998 Equity Plan for Non-
Employee Directors of Focal Communications Corporation (the "1998 Non-Employee
Plan"). The Board has sole and complete authority to select participants and
grant options for the Company's Class A common shares which shall not exceed
300 shares, as defined in the 1998 Non-Employee Plan.
The total number of shares available under the amended 1997 Plan, the 1998
Plan, and the 1998 Non-Employee Plan shall not exceed 17,060 shares.
The Company has chosen to account for stock based compensation using the
intrinsic value method prescribed in Accounting Principals Board Opinion
("APB") No. 25, "Accounting for Stock Issued To Employees." Accordingly, no
compensation expense has been recorded for its stock option awards, but
rather, the Company has determined the pro forma net loss amount for the third
quarter of 1998 as if compensation expense had been recorded for options
granted during 1997 and the third quarter of 1998 under the fair value method
described in SFAS No. 123, "Accounting for Stock-Based Compensation".
The Company utilizes the Black-Scholes option pricing model to estimate the
fair value of options at the date of grant. Had the Company adopted SFAS No.
123, pro forma net loss applicable to common stockholders and pro forma basic
and diluted net loss per share of common stock would have been approximately
$(4,835,669) and $(54.79), respectively, for the quarter ended September 30,
1998, and $(5,832,931) and $(66.07), respectively, for the nine months ended
September 30, 1998.
The following summarizes option activity:
<TABLE>
<CAPTION>
WEIGHTED
SHARES OF AVERAGE
CLASS A EXERCISE EXERCISE
COMMON PRICES PRICE
--------- ---------- ---------
<S> <C> <C> <C>
Outstanding at December 31, 1997......... 1,222 $290-$ 320 $ 296.61
Granted during the nine months ended
September 30, 1998...................... 5,034 $335-1,500 $1,194.19
----- ---------- ---------
Outstanding at September 30, 1998........ 6,256 $290-1,500 $1,018.86
===== ========== =========
</TABLE>
9
<PAGE>
FOCAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS--
(CONTINUED)
8. REDEEMABLE COMMON STOCK
On January 23, 1998, the Company amended the Stock Purchase Agreement. As a
result of the amendment, the redeemable Class A common stock was reclassified
into permanent equity. The amended Stock Purchase Agreement also allows
Institutional Investors (as defined therein) at any time and from time to time
on or after November 27, 2003, but not after the consummation of a public
offering of the Company's equity securities, to require the Company to
voluntarily liquidate the assets of the Company. Upon receipt of notice of the
required liquidation, the Company may elect to purchase all but not less than
all of the Institutional Investors' Class A common shares.
9. CLASS C COMMON STOCK
Effective as of September 30, 1998, the Company effected the cancellation of
12,711 shares of the Company's Class C common stock then outstanding,
cancellation of 5,000 shares of the Company's Class A common stock held by
certain institutional shareholders and the conversion of 2,000 shares of the
Company's Class C common stock into Class B common stock, subject to certain
restrictions, to the Company's founding shareholders in satisfaction of the
obligations of the Company and such shareholders set forth in certain vesting
agreements entered into at the time of the Company's November 1996
recapitalization. In connection with such transactions, compensation expense
totaling approximately $4 million will be charged to income over the vesting
period of the restricted Class B common shares issued. Additional compensation
expense of $1.7 million was recorded in September 1998 relating to this
matter.
10. INCOME TAXES
For the nine months ended September 30, 1998 the Company recorded an income
tax provision of $2.2 million. Even though the Company is reporting a loss
before income taxes, the Company has positive taxable income and is paying
income taxes. This is because of the non-deductibility, for tax purposes, of
the interest accrued on the Company's 12.125% discount notes. This interest
expense is subject to the high yield discount obligation ("HYDO") rules which
limits the amount of original issue discount ("OID") which can be deducted in
the current taxable period. This interest will become deductible for tax
purposes in the period in which the Notes are redeemed. The deferred tax
consequences related to the interest accrued and other temporary differences
in reporting items for financial statement and income tax purposes are
recognized in the financial statements. Realization of future tax benefits
related to the deferred tax assets is dependent on many factors, including the
Company's ability to generate taxable income. Management has considered these
factors and has concluded that a full valuation allowance for financial
reporting purposes is required for the deferred tax assets.
The net result is that the Company's income tax provision for the three and
nine months ended September 30, 1998 approximates the amount of income taxes
payable based on its operating results through that date.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
General: The Company began operations during 1996 and has operated in
Chicago since May 1997, New York since January 1998, and Philadelphia and San
Francisco since September 1998. The Company currently serves a total of 13
MSAs (metropolitan statistical areas). The Company plans to offer services in
29 additional MSAs by the end of 1999, reaching a total of 42 MSAs in ten
metropolitan markets. As of September 30, 1998, the Company had 41,316 access
lines sold, of which 33,188 were installed and in service. This compares to
13,411 lines sold and 7,394 lines installed as of December 31,1997.
The Company's plan to expand into 29 additional MSAs requires significant
expenditures to fund operating losses and the purchase of capital equipment.
The Company believes it can lower its initial capital requirements and
generate a substantially greater return on invested capital by concentrating
its investments in switching and information, billing, and support systems,
while leasing transport facilities. This network investment strategy differs
from many other competitive local exchange carries (CLECs) who build and
maintain their own transport facilities.
The Company targets its services to telecommunications-intensive customers
and, as a result, expects to generate revenue per line in excess of the
industry average. In addition, the Company believes that its cost structure is
below the industry average. Consequently, the Company expects to more rapidly
generate positive operating cash flow from its new networks as compared to
other CLECs. Nevertheless, the simultaneous development of a number of new
networks may result in negative consolidated operating cash flow.
Revenues: The Company's revenue is comprised of monthly recurring charges,
usage charges, and initial, non-recurring charges. Monthly recurring charges
include the fees paid by customers for lines in service, additional features
on those lines, and colocation space. Monthly recurring charges are derived
only from end user customers. Usage charges consist of fees paid by end users
for each call made, fees paid by the incumbent local exchange carrier
(ILEC)and other CLECs as reciprocal compensation (which results from the
Company terminating calls made by ILEC customers or other CLEC customers to
Focal's customers), and access charges paid by the interexchange carriers
(IXCs) for long distance traffic originated and terminated by the Company.
Usage charges are derived from both end user customers and from other
carriers. Initial non- recurring charges are paid by end users, if applicable,
for the installation of service by the Company.
Reciprocal compensation is currently a significant component of the
Company's total revenue. This is the result of an imbalance of inbound and
outbound traffic due to the preponderance of inbound applications utilized by
the Company's customers. Such inbound applications include Focal Virtual
Office service, which is used by Focal's corporate customers, and Focal Multi-
Exchange Service, which is used by Focal's Internet Service Provider (ISP)
customers. The Company expects the proportion of revenue represented by
reciprocal compensation to decline over time as the percentage of lines sold
for outbound applications increases as each given market matures.
End user invoices are sent to customers monthly with recurring charges being
billed in advance and usage charges being billed in arrears. Reciprocal
compensation and carrier access invoices are sent monthly to the appropriate
ILECs and IXCs according to industry standard practices and in industry
standard formats.
Operating Expenses: The Company's operating expenses are categorized as
customer service and network operations; selling, general and administrative;
depreciation and amortization; and non-cash compensation expense. Settlement
costs are a significant portion of customer service and network operations
expense and are comprised of leased transport charges and reciprocal
compensation payments. Leased transport charges are the lease payments
incurred by Focal for the fiber optic transmission facilities used to connect
the Company's customers to its switch and to connect the Company's network to
the ILEC and other CLEC networks. The Company's strategy of leasing rather
than building its own fiber transport facilities results in the Company's cost
of service being a significant component of total costs. The Company has to
date been successful in negotiating
11
<PAGE>
lease agreements which match the duration of its customer contracts, thereby
allowing the Company to avoid the risk of continuing expenses associated with
transmission facilities that are not being used by revenue generating
customers. The Company pays reciprocal compensation to ILECs and other CLECs
for terminating calls made by Focal's customers to customers of the ILEC or
CLEC.
Other customer service and network operations expense consists of the costs
to operate the Company's network and the costs of providing customer care
activities. Major components include: wages, rent, power, equipment
maintenance, supplies, and contract employees.
Selling, general and administrative expenses consist of sales force
compensation and promotional expenses as well as the cost of corporate
activities related to regulatory, finance, human resources, legal, executive,
and other administrative activities.
The Company records non-cash compensation expense each quarter as a result
of having given retroactive effect to a change in accounting related to
certain shares issued to the Company's founders in November 1996. This change
in accounting is further described in Amendment No. 4 to the Registration
Statement on Form S-4 filed with the Securities and Exchange Commission on
August 13, 1998. Commencing in September 1998, non-cash compensation expense
is also being recorded each quarter to account for the conversion of certain
shares of the Company's Class C common stock to shares of restricted Class B
common stock.
The Company's strategy of leasing, rather than building, its transport
network results in capital expenditures which are proportionately lower than
most fiber-based CLECs. In addition, the proportion of capital expenditures
which are "success-based" are higher than most fiber-based CLECs. In contrast,
the Company incurs operating expenses for leased facilities, which are
proportionately higher than fiber-based CLECs. The margin impact of these
higher, anticipated operating expenses is expected to be mitigated, in part,
by a higher revenue per line, which the Company anticipates as a result of its
focus on telecommunications-intensive users.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1998 Compared to Three Months Ended
September 30, 1997
Total revenue for the three months ended September 30, 1998 was $12,755,293
compared to $1,226,077 for the three months ended September 30, 1997. The
significant increase in revenue is due to the Company's rapid growth in its
Chicago and New York markets during 1998 and the fact that the Company
recorded its first revenue during May 1997. Customer service and network
operations expense was $4,432,861 during the most recent three-month period
compared to $760,847 in the three months ended September 30, 1997. The
increase resulted from the Company's rapid expansion and related costs for
leased facilities, usage settlements, customer care and operations personnel,
equipment maintenance, and other operating expenses. Selling, general and
administrative expense also increased due to the Company's expansion from
$747,102 during the three months ended September 30, 1997 to $3,973,719 during
the most recent three-month period. Similarly, depreciation and amortization
increased from $179,512 to $1,907,601 in the comparative periods as a result
of a significant increase in the level of fixed assets put into service by the
Company. Non-cash compensation expense was $325,000 for the period ended
September 30, 1997 compared to $2,022,144 for the current period. The increase
in non-cash compensation in the current period is a result of the conversion
of certain Class C shares of the Company's common stock to restricted Class B
shares. Because of certain immediate vesting features and other provisions of
the conversion agreement, the non-cash compensation charge will not be as
large in future periods. Interest income increased from $43,143 in the three
months ended September 30, 1997 to $1,801,116 in the three months ended
September 30, 1998 due to a substantial increase in cash balances held by the
Company, primarily from financing activities. Interest expense increased from
$22,314 in the three months ended September 30, 1997 to $4,676,705 in the most
recent three-month period due to accrued interest expense from the Company's
12.125% senior discount notes due 2008 (the "Notes"), which were issued in
February 1998. A provision for income tax in the amount of $2,197,096 was
recorded in the three months ended September 30, 1998. Even though the Company
is reporting a loss before income taxes, the Company has positive taxable
income.
12
<PAGE>
A provision for income tax is being recorded to reflect the non-
deductibility, for tax purposes, of the interest accrued on the Company's
12.125% discount notes. This interest expense is subject to the high yield
discount obligation ("HYDO") rules which limits the amount of original issue
discount ("OID") which can be deducted in the current taxable period. This
interest will become deductible for tax purposes in the period in which the
Notes are redeemed.
The Company's net loss increased from $(765,555) during the three months
ended September 30, 1997 to $(4,653,717) in the three-month period ended
September 30, 1998 due largely to the Company's rapid expansion, the provision
for income taxes, and the increased non-cash compensation charge recorded
during the quarter.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September
30, 1997
Total revenue for the nine months ended September 30, 1998 was $25,935,784
compared to $1,312,984 for the nine months ended September 30, 1997. The
significant increase in revenue is due to the Company's rapid growth in its
Chicago and New York markets during 1998 and the fact that the Company
recorded its first revenue during May 1997. Customer service and network
operations expense was $9,046,809 during the most recent nine- month period
compared to $1,029,566 in the nine months ended September 30, 1997. The
increase resulted from the Company's rapid expansion and related costs for
leased facilities, usage settlement, customer care and operations personnel,
equipment maintenance, and other operating expenses. Selling, general and
administrative expense also increased due to the Company's expansion from
$1,725,942 during the nine months ended September 30, 1997 to $7,245,504
during the most recent nine-month period. Similarly, depreciation and
amortization increased from $272,070 to $3,913,870 in the comparative periods
as a result of a significant increase in the level of fixed assets put into
service by the Company. Non-cash compensation expense was $975,000 for the
period ended September 30, 1997 compared to $2,672,144 for the current nine-
month period. The increase in non-cash compensation in the current period is a
result of the conversion of certain Class C shares of the Company's common
stock to restricted Class B shares. Interest income increased from $142,082 in
the nine months ended September 30, 1997 to $4,881,831 in the nine months
ended September 30, 1998 due to a substantial increase in cash balances held
by the Company, primarily from financing activities. Interest expense
increased from $26,011 in the nine months ended September 30, 1997 to
$11,320,499 in the most recent nine month period due to accrued interest
expense from the Notes, which were issued in February 1998. A provision for
income tax in the amount of $2,197,096 was recorded during the nine months
ended September 30, 1998. Even though the Company is reporting a loss before
income taxes, the Company has positive taxable income.
A provision for income tax is being recorded to reflect the non-
deductibility, for tax purposes, of the interest accrued on the Company's
12.125% discount notes. This interest expense is subject to the high yield
discount obligation ("HYDO") rules which limits the amount of original issue
discount ("OID") which can be deducted in the current taxable period. This
interest will become deductible for tax purposes in the period in which the
Notes are redeemed.
The Company's net loss increased from $(2,573,523) during the nine months
ended September 30, 1997 to $(5,578,307) in the nine-month period ended
September 30, 1998 due to the Company's rapid expansion, the provision for
income taxes, and the increased non-cash compensation charge recorded in the
period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's existing operations have required, and its planned operations
will require, significant capital to fund the purchase and installation of
telecommunications switches, equipment, infrastructure, and the operating
losses expected during the start-up phase of each new market. Capital
expenditures were $43,048,293 for the nine months ended September 30, 1998.
The Company expects total capital expenditures for the year ended December
31,1998 to be approximately $60 million. Total capital expenditures for 1999
are currently estimated to be $80 million. Prior to issuance of the Notes, the
Company funded a substantial portion of its capital expenditures through the
private sale of equity securities. In November 1996, the Company entered into
a stock purchase agreement which provided for the contribution over time of
approximately $26.1 million of equity
13
<PAGE>
funding by a group of investors. As of February 13, 1998, the equity investors
have contributed the entire $26.1 million to the Company. In addition, in
1997, the Company's Illinois subsidiary borrowed approximately $3.5 million
under a bank credit facility. The Company used a portion of the net proceeds
from the senior discount note offering to prepay this indebtedness and cancel
the facility.
On February 18, 1998, the Company received gross proceeds of $150,027,606
from the completion of its offering of 12.125% senior discount notes due
2008.The Notes will accrete to an aggregate stated principal amount of
$270,000,000 by February 15, 2003. No interest will be payable on the Notes
prior to August 15, 2003. Thereafter, interest will be payable semiannually on
August 15 and February 15 of each year.
The Company has incurred net losses since inception. A portion of the prior
equity investments and debt proceeds have been used to fund the Company's
negative cash flow and net losses. Management believes the Company may produce
negative operating cash flow on a consolidated basis as it completes the
buildout of its ten city plan. There can be no assurance the Company will
realize positive consolidated operating cash flow in subsequent periods. Until
sufficient cash flow is generated, the Company will continue to rely on cash
on hand and outside capital to meet its cash requirements.
The Company's cash flows for the period from May 31, 1996 (the Company's
commencement of operations) to December 31, 1996, was $3,790,121. During this
period, net cash used in operating activities consisted of $152,576; net cash
used in investing activities consisted of $82,303; and net cash provided by
financing activities consisted of $4,025,000. The Company's cash flows for the
year ended December 31, 1997 was $1,533,569. During this period, net cash used
in operating activities consisted of $1,634,017; net cash used in investing
activities consisted of $11,655,524; and net cash provided by financing
activities consisted of $11,755,972. The Company's cash flows for the nine
months ended September 30, 1998 was $121,443,301. During this period, net cash
provided by operating activities consisted of $10,330,972; net cash used in
investing activities consisted of $43,048,293; and net cash provided by
financing activities consisted of $154,160,622.
The Company expects its available cash, including the net proceeds from the
sale of its senior discount notes, will be sufficient to fund its capital
requirements through 1999. However, if the Company's expansion occurs more
rapidly than currently anticipated or if its operating results are below
expectations, the Company may require additional capital. The Company may
decide to raise additional capital before such time. The Company may secure
additional funding through the sale of public or private debt and/or equity
securities or enter into a future bank credit facility. There can be no
assurance, however, that the Company will be successful in raising sufficient
additional capital on terms that it will consider acceptable or that the
Company's operations will produce positive consolidated cash flow in
sufficient amounts to meet its debt obligations. Failure to raise and generate
sufficient funds may require the Company to delay or abandon some of its
planned future expansion or expenditures, which could have a material adverse
effect on the Company's growth and its ability to compete in the
telecommunications industry.
IMPACT OF THE YEAR 2000 ISSUE
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the computer
programs or systems of the Company or the Company's suppliers that have date-
sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculation
causing disruption of operations, including among other things, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities, or interruptions of customer service.
The Company has performed an internal assessment of its information systems,
including its DMS-500 Super-Node central office switches and hardware,
including embedded systems, to determine whether such systems and hardware are
year 2000 compliant. Except as provided in the following sentence, the Company
has received assurances from its material hardware vendors and its major
software vendors that the products used by the Company are year 2000 compliant
and will function adequately. The Company has been advised by one of
14
<PAGE>
its major software vendors, which provides the Company's billing system, that
while the current system is not year 2000 compliant, an upgrade to such
system, which is expected to be operational by the middle of 1999, will be
year 2000 compliant. The company does not anticipate that the cost of such
upgrade will be material on an incremental basis since this upgrade is being
done primarily for other business purposes.
The Company's services are also dependent on network systems, including
switching systems, maintained by other carriers, including the ILECs and IXCs.
The Company is in the process of assessing the year 2000 compliance status of
certain other carriers with whom the Company has material relationships. Such
assessment relies (without any independent verification) on the statements,
including the assumptions underlying such statements, from such carriers that
appear in such carriers' periodic reports filed with the Commission pursuant
to the Exchange Act. The risks associated with the failure of such carriers'
systems would include potential interruption of service, including blocked
calls and delayed call completion, especially for the Company's high-volume
corporate customers. Because the Company leases its transport capacity and is
dependent on the availability of fiber optic transport facilities owned by
other carriers, there are few, if any, contingency measures that the Company
could take if year 2000 non-compliance were to cause the facilities of the
Company's carriers to become unavailable. While the Company leases transport
facilities from multiple carriers in each of its relevant markets and attempts
to provide redundancy and diversity in service, there can be no assurance that
multiple network failures in a particular market could not occur. Should such
vendors experience facilities failures, it could prove disruptive to the
Company's business and could have a material adverse effect on the Company. In
addition, there can be no assurance that devoting additional resources of the
Company to year 2000 non-compliance, if arising, would not have a material
adverse effect on the Company. The Company will continue its year 2000
compliance assessment of its own computer programs and systems. If it comes to
the attention of the Company's management that any of its systems, or the
systems of those on which the Company relies, are not year 2000 compliant, the
Company intends to develop an action plan, and assess the resources it would
be required to devote, to address such problem.
The Company has not incurred any incremental expenses in the first nine
months of 1998 or 1997 related to year 2000 remediation. The Company also does
not expect any future incremental expenditures.
The cost of the Company's year 2000 remediation and the status of the
Company's year 2000 compliance measures are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third parties' year
2000 readiness and other factors.
The foregoing discussion contains forward-looking statements. The Company's
future performance is subject to numerous risks and uncertainties that could
cause actual results to deviate substantially from those discussed in these
forward-looking statements. Factors that could impact the variability of
future results include: the outcome of legal and regulatory proceedings
regarding reciprocal compensation for Internet-related calls and certain of
the Company's product offerings; successful execution of the Company's
expansion activities into new geographic markets on a timely and cost-
effective basis; the pace at which new competitors enter the Company's
existing and planned markets; responses of the competitors (including the
ILECs); execution of interconnection agreements with ILECs on terms
satisfactory to the Company; maintenance of the Company's supply agreements
for transport facilities; continued acceptance of the Company's services by
new and existing customers; the ability of the Company's systems and software
to process year 2000 data correctly; the Company's ability to attract and
retain talented employees, the Company's ability to successfully access
markets, install switching electronics, and obtain the use of leased fiber
transport facilities and any required governmental authorizations, franchises
and permits, all in a timely manner, at reasonable costs and on satisfactory
terms and conditions, as well as regulatory, legislative and judicial
developments that could cause actual results to differ materially from the
future results indicated, express or implied, in such forward-looking
statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Required
15
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time the Company is party to routine litigation and proceedings
in the ordinary course of its business. Other than listed below, the Company
and its subsidiaries are not aware of any current or pending litigation that
the Company believes would have a material adverse effect on the Company's
results of operations or financial condition. The Company and its subsidiaries
continue to participate in regulatory proceedings before the FCC and state
regulatory agencies concerning the authorization of services and the adoption
of new regulations.
Focal, together with other CLECs, contends that Ameritech Illinois owes
reciprocal compensation for calls originated by customers of Ameritech
Illinois and terminated by CLECs to Internet service providers, who then route
traffic onto the Internet. The Company has recorded cumulative revenue and
related accounts receivable totaling $10.2 million as of September 30, 1998,
from Ameritech Illinois who is currently disputing this obligation to the
Company. The Illinois Commerce Commission ("ICC") ruled in favor of the
Company and other CLECs regarding this dispute in March of 1998. On March 27,
1998, Ameritech Illinois filed suit in the United States District Court for
the Northern District of Illinois seeking to reverse the ICC order and was
granted a stay of the ICC order pending consideration of the appeal. The court
rendered a decision on July 21, 1998 affirming the ICC order. Ameritech
appealed the decision to the 7th Circuirt Court of Appeals, and was denied a
stay pending appeal. As of September 30, 1998 the District Court stay had
expired and Ameritech Illinois was in violation of the order. Subsequently
Ameritech Illinois complied with the order and commenced payment for past
reciprocal compensation charges. During October 1998, the Company received
substantially all of the disputed obligation from Ameritech.
In July 1998 Ameritech filed a complaint with the ICC alleging that Focal's
Virtual Office service violates the interconnection agreement between
Ameritech and the Company and certain state statutes. Ameritech also alleged
that through its Virtual Office service, Focal is contributing to the
exhaustion of phone numbers in the 847 area code. Ameritech complained that
calls on Focal's Virtual Office network are circumventing local toll charges,
and should not be subject to reciprocal compensation. Ameritech also alleged
that the Company is offering service in violation of the state's pay-per-call
rules. The Company believes that these claims lack merit. Nevertheless, an
adverse outcome in this dispute could have a material adverse effect on the
Company.
The Company was named as a defendant, along with other parties, in a case
involving the wrongful death of an electrician who was killed while working on
the building premises in New York (Paula Falkowski v. Signature Construction,
Inc., Focal Communications Corporation of New York, and Hugh O'Kane Electric
Company, Inc.; Index No. 122037/97, Supreme Court of the State of New York,
County of New York, amended complaint filed 4/3/98). The decedent was not
under contract with Focal, nor was he working at the request of Focal. The
Company has tendered the defense of this claim, and it has been accepted by
the insurance carrier. The Company believes that it was not the cause of the
injuries and subsequent death which gave rise to this lawsuit, and that any
liability it may have in this case would be covered by insurance and not be
material.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
EXHIBIT DESCRIPTION
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S> <C>
4.1 Vesting Agreement as of November 27, 1996 by and among
Madison Dearborn Capital Partners, L.P., (the "New Capital
Investor"), Focal Communications Corporation and each of
Robert C. Taylor, Jr., John R. Barnicle, Brian F. Addy and
Joseph Beatty.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S> <C>
4.2 Vesting Agreement as of November 27, 1996 by and among
Frontenac VI, L.P., (the "New Capital Investor"), Focal
Communications Corporation and each of Robert C. Taylor,
Jr., John R. Barnicle, Brian F. Addy and Joseph Beatty.
4.3 Vesting Agreement as of November 27, 1996 by and among
Battery Ventures III, L.P., (the "New Capital Investor"),
Focal Communications Corporation and each of Robert C.
Taylor, Jr., John R. Barnicle, Brian F. Addy and Joseph
Beatty.
4.4 Amendment No. 1 to Vesting Agreement and Consent as of
August 21, 1998 between Focal Communications Corporation,
a Delaware corporation, Brian F. Addy, John R. Barnicle,
Joseph Beatty, Robert C. Taylor, Jr., (collectively, the
"Executive Investors"), Madison Dearborn Capital Partners,
L.P. (the "New Capital Investor"), Frontenac VI, L.P. and
Battery Ventures III, L.P. (collectively, the
"Institutional Investors").
4.5 Amendment No. 1 to Vesting Agreement and Consent as of
August 21, 1998 between Focal Communications Corporation,
a Delaware corporation, Brian F. Addy, John R. Barnicle,
Joseph Beatty, Robert C. Taylor, Jr., (collectively, the
"Executive Investors"), Madison Dearborn Capital Partners,
L.P., Frontenac VI, L.P. (the "New Capital Investor"), and
Battery Ventures III, L.P. (collectively, the
"Institutional Investors").
4.6 Amendment No. 1 to Vesting Agreement and Consent as of
August 21, 1998 between Focal Communications Corporation,
a Delaware corporation, Brian F. Addy, John R. Barnicle,
Joseph Beatty, Robert C. Taylor, Jr., (collectively, the
"Executive Investors"), Madison Dearborn Capital Partners,
L.P., Frontenac VI, L.P. and Battery Ventures III, L.P.
(the "New Capital Investor", collectively, the
"Institutional Investors").
4.7 Form of Restricted Stock Agreement dated September 30,
1998 between Focal Communications Corporation and each of
Brian F. Addy, John R. Barnicle, Joseph Beatty, and Robert
C. Taylor, Jr.
4.8 Amendment No. 2 to Stock Purchase Agreement with Madison
Dearborn Capital Partners, L.P., Frontenac VI, L.P.,
Battery Ventures III, L.P., Brian F. Addy, John R.
Barnicle, Joseph Beatty, and Robert C. Taylor Jr., dated
August 21, 1998.
4.9 Amendment No. 1 to Stockholders Agreement with Madison
Dearborn Capital Partners, L.P., Frontenac VI, L.P.,
Battery Ventures III, L.P., Brian F. Addy, John R.
Barnicle, Joseph Beatty, and Robert C. Taylor Jr., dated
July 7, 1998.
4.10 Amendment No. 2 to Stockholders Agreement with Madison
Dearborn Capital Partners, L.P., Frontenac VI, L.P.,
Battery Ventures III, L.P., Brian F. Addy, John R.
Barnicle, Joseph Beatty, and Robert C. Taylor Jr., dated
August 21, 1998.
4.11 Amendment No. 1 to Executive Employment Agreement and
Consent with Brian F. Addy, dated August 21, 1998.
4.12 Amendment No. 1 to Executive Employment Agreement and
Consent with John R. Barnicle, dated August 21, 1998.
4.13 Amendment No. 1 to Executive Employment Agreement and
Consent with Joseph Beatty, dated August 21, 1998.
4.14 Amendment No. 1 to Executive Employment Agreement and
Consent with Robert C. Taylor, Jr. dated August 21, 1998.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S> <C>
4.15 Amendment No. 1 to Registration Agreement with Madison
Dearborn Capital Partners, L.P., Frontenac VI, L.P.,
Battery Ventures III, L.P., Brain F. Addy, John R.
Barnicle, Joseph Beatty, and Robert C. Taylor, Jr. dated
August 21, 1998.
10.1 First Amendment to the Interconnection Agreement with
Ameritech Information Industry Services, dated September
8, 1998.
10.2 Lease Agreement for property located at 1511 6th Avenue,
Seattle, WA, dated August 7, 1998.
10.3 Lease Agreement for property located at 23800 West Ten
Mile Road, Southfield, MI, dated August 31, 1998.
10.4 Lease Agreement for property located at One Penn Plaza,
New York, NY, dated September 25, 1998.
10.5 First Amendment to Lease Agreement for property located at
1200 West 7th Street, Los Angeles, CA, dated July 8, 1998.
10.6 First Amendment to Lease Agreement for property located at
1120 Vermont NW, Washington, D.C., dated July 23, 1998.
10.7 1997 Nonqualified Stock Option Plan, amended and restated
as of August 21, 1998.
10.8 1998 Equity and Performance Incentive Plan.
10.9 1998 Equity Plan for Non-Employee Directors of Focal
Communications Corporation.
10.10 Amendment No. 1 to Executive Employment Agreement and
consent with Renee M. Martin, dated August 21, 1998.
27.1 Financial Data Schedule
</TABLE>
(B) REPORTS ON FORM 8-K
The Company did not file any current reports on Form 8-K during the quarter
ended September 30, 1998.
18
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Focal Communications Corporation
Date: November 16, 1998 Robert C. Taylor, Jr.,
_____________________________________
Robert C. Taylor, Jr.,
President and Chief Executive Offi-
cer
(Authorized Officer)
Date: November 16, 1998 /s/ Joseph A. Beatty
_____________________________________
Joseph A. Beatty,
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
Date: November 16, 1998 /s/ Robert M. Junkroski
_____________________________________
Robert M. Junkroski,
Controller
(Principal Accounting Officer)
19
<PAGE>
EXHIBIT DESCRIPTION
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S> <C>
4.1 Vesting Agreement as of November 27, 1996 by and among
Madison Dearborn Capital Partners, L.P., (the "New Capital
Investor"), Focal Communications Corporation and each of
Robert C. Taylor, Jr., John R. Barnicle, Brian F. Addy and
Joseph Beatty.
4.2 Vesting Agreement as of November 27, 1996 by and among
Frontenac VI, L.P., (the "New Capital Investor"), Focal
Communications Corporation and each of Robert C. Taylor,
Jr., John R. Barnicle, Brian F. Addy and Joseph Beatty.
4.3 Vesting Agreement as of November 27, 1996 by and among
Battery Ventures III, L.P., (the "New Capital Investor"),
Focal Communications Corporation and each of Robert C.
Taylor, Jr., John R. Barnicle, Brian F. Addy and Joseph
Beatty.
4.4 Amendment No. 1 to Vesting Agreement and Consent as of
August 21, 1998 between Focal Communications Corporation,
a Delaware corporation, Brian F. Addy, John R. Barnicle,
Joseph Beatty, Robert C. Taylor, Jr., (collectively, the
"Executive Investors"), Madison Dearborn Capital Partners,
L.P. (the "New Capital Investor"), Frontenac VI, L.P. and
Battery Ventures III, L.P. (collectively, the
"Institutional Investors").
4.5 Amendment No. 1 to Vesting Agreement and Consent as of
August 21, 1998 between Focal Communications Corporation,
a Delaware corporation, Brian F. Addy, John R. Barnicle,
Joseph Beatty, Robert C. Taylor, Jr., (collectively, the
"Executive Investors"), Madison Dearborn Capital Partners,
L.P., Frontenac VI, L.P. (the "New Capital Investor"), and
Battery Ventures III, L.P. (collectively, the
"Institutional Investors").
4.6 Amendment No. 1 to Vesting Agreement and Consent as of
August 21, 1998 between Focal Communications Corporation,
a Delaware corporation, Brian F. Addy, John R. Barnicle,
Joseph Beatty, Robert C. Taylor, Jr., (collectively, the
"Executive Investors"), Madison Dearborn Capital Partners,
L.P., Frontenac VI, L.P. and Battery Ventures III, L.P.
(the "New Capital Investor", collectively, the
"Institutional Investors").
4.7 Form of Restricted Stock Agreement dated September 30,
1998 between Focal Communications Corporation and each of
Brian F. Addy, John R. Barnicle, Joseph Beatty, and Robert
C. Taylor, Jr.
4.8 Amendment No. 2 to Stock Purchase Agreement with Madison
Dearborn Capital Partners, L.P., Frontenac VI, L.P.,
Battery Ventures III, L.P., Brian F. Addy, John R.
Barnicle, Joseph Beatty, and Robert C. Taylor Jr., dated
August 21, 1998.
4.9 Amendment No. 1 to Stockholders Agreement with Madison
Dearborn Capital Partners, L.P., Frontenac VI, L.P.,
Battery Ventures III, L.P., Brian F. Addy, John R.
Barnicle, Joseph Beatty, and Robert C. Taylor Jr., dated
July 7, 1998.
4.10 Amendment No. 2 to Stockholders Agreement with Madison
Dearborn Capital Partners, L.P., Frontenac VI, L.P.,
Battery Ventures III, L.P., Brian F. Addy, John R.
Barnicle, Joseph Beatty, and Robert C. Taylor Jr., dated
August 21, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S> <C>
4.11 Amendment No. 1 to Executive Employment Agreement and
Consent with Brian F. Addy, dated August 21, 1998.
4.12 Amendment No. 1 to Executive Employment Agreement and
Consent with John R. Barnicle, dated August 21, 1998.
4.13 Amendment No. 1 to Executive Employment Agreement and
Consent with Joseph Beatty, dated August 21, 1998.
4.14 Amendment No. 1 to Executive Employment Agreement and
Consent with Robert C. Taylor, Jr. dated August 21, 1998.
4.15 Amendment No. 1 to Registration Agreement with Madison
Dearborn Capital Partners, L.P., Frontenac VI, L.P.,
Battery Ventures III, L.P., Brain F. Addy, John R.
Barnicle, Joseph Beatty, and Robert C. Taylor, Jr. dated
August 21, 1998.
10.1 First Amendment to the Interconnection Agreement with
Ameritech Information Industry Services, dated September
8, 1998.
10.2 Lease Agreement for property located at 1511 6th Avenue,
Seattle, WA, dated August 7, 1998.
10.3 Lease Agreement for property located at 23800 West Ten
Mile Road, Southfield, MI, dated August 31, 1998.
10.4 Lease Agreement for property located at One Penn Plaza,
New York, NY, dated September 25, 1998.
10.5 First Amendment to Lease Agreement for property located at
1200 West 7th Street, Los Angeles, CA, dated July 8, 1998.
10.6 First Amendment to Lease Agreement for property located at
1120 Vermont NW, Washington, D.C., dated July 23, 1998.
10.7 1997 Nonqualified Stock Option Plan, amended and restated
as of August 21, 1998.
10.8 1998 Equity and Performance Incentive Plan.
10.9 1998 Equity Plan for Non-Employee Directors of Focal
Communications Corporation.
10.10 Amendment No. 1 to Executive Employment Agreement and
consent with Renee M. Martin, dated August 21, 1998.
27.1 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 4.1
VESTING AGREEMENT
-----------------
THIS VESTING AGREEMENT (this "Agreement") is made as of November 27,
1996, by and among Madison Dearborn Capital Partners, L.P. (the "New Capital
Investor"), Focal Communications Corporation (the "Company"), and each of Robert
C. Taylor, Jr., John R. Barnicle, Brian F. Addy and Joseph Beatty (individually
an "Executive Investor" and collectively the "Executive Investors").
The execution and delivery of this Agreement is a condition to the
purchase of the Company's Class A Common Stock, par value $.01 per share (the
"Class A Common"), by the New Capital Investor, the Executive Investors and
certain other investors (collectively, the "Investors"), pursuant to a Stock
Purchase Agreement of even date herewith by and among the Company and such
Investors (the "Stock Purchase Agreement"). Capitalized terms used but not
otherwise defined herein are used herein with the meanings ascribed to such
terms in Sections 2 and 3 below.
NOW, THEREFORE, in consideration of the mutual premises made herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
Section 1. Vesting and Forfeiture.
1A. Vesting and Forfeiture upon a Sale. Contemporaneously with any
sale or transfer by the New Capital Investor to any person of any shares of
Qualified Common (including by way of merger or consolidation, but excluding (i)
any sale or transfer of shares to a Successor Fund upon such Successor Fund's
execution of a counterpart to this Agreement agreeing to be bound by the
provisions hereof and to succeed to the rights and obligations of New Capital
Investor hereunder with respect to the shares of Qualified Common sold or
transferred to such Successor Fund, and (ii) any recapitalization or other
reorganization in which the New Capital Investor's holdings of the Company's
equity immediately after such transaction are equal to the New Capital
Investor's holdings of the Company's equity immediately prior to such
transaction) (a "Sale"):
(a) a number (if any) of the shares of Unvested Class C Common
held by each holder of Unvested Class C Common shall vest equal to the
product obtained by multiplying (x) the number of shares of Qualified
Common being transferred in such Sale, times (y) such holder's Applicable
Percentage for such Sale;
(b) a number (if any) of the New Capital Investor's shares of
Nonqualified Common equal to the product obtained by multiplying (i) the
number of shares of Qualified Common being transferred in such Sale, times
(ii) the sum of the Applicable Percentages for all holders of Unvested
Class C Common for such Sale, shall without further action by the Company
or the New Capital Investor automatically be deemed forfeited, and the New
<PAGE>
Capital Investor shall thereafter no longer exercise nor have the right to
exercise any of its rights with respect to such forfeited shares; and
(c) a number of the shares of Unvested Class C Common held by
each holder of Unvested Class C Common equal to the difference (if any)
obtained by subtracting (i) the number of such holder's shares of Unvested
Class C Common that are to vest as a result of such Sale, from (ii) the
number of such holder's shares of Unvested Class C Common that would vest
as a result of such Sale if the Return Multiple for such Sale were 35,
shall without further action by the Company or such holder automatically be
deemed forfeited, and such holder shall thereafter no longer exercise nor
have the right to exercise any of its rights with respect to such forfeited
shares.
1B. Vesting and Forfeiture upon Election Notice following a Rule 144
Quarter. If, within 10 business days after any calendar quarter (following the
consummation of the Company's initial Public Offering) during which any shares
of Qualified Common then held by the New Capital Investor (excluding (i) shares
sold or transferred pursuant to a Sale during such calendar quarter, and (ii)
shares the transfer of which during such calendar quarter would have been
restricted under any hold-back agreement entered into with, or for the benefit
of, the Company or its underwriters) are eligible to be transferred pursuant to
Rule 144 promulgated by the Securities Exchange Commission under the Securities
Act of 1933, as amended, or any successor rule or rules then in effect ("Rule
144") as of the last business day of such calendar quarter (such a calendar
quarter, a "Rule 144 Quarter") (such eligible shares, the "Rule 144 Eligible
Shares"), any holder of Unvested Class C Common gives written notice to the New
Capital Investor setting forth the number of Rule 144 Eligible Shares for such
Rule 144 Quarter, such holder's estimated calculation of the Fair Market Value
of such Rule 144 Eligible Shares (including all market information necessary to
enable the New Capital Investor to perform such calculation), and such holder's
estimated calculation of the number of such holder's shares of Unvested Class C
Common that will vest pursuant to paragraph 1B(a) with respect to such Rule 144
Quarter ("Election Notice"), then on the 20th business day following such Rule
144 Quarter:
(a) a number (if any) of the shares of Unvested Class C Common
held by each such electing holder shall vest equal to the product obtained
by multiplying (x) the number of Rule 144 Eligible Shares for such Rule 144
Quarter, times (y) such holder's Applicable Percentage for such Rule 144
Quarter;
(b) a number (if any) of the New Capital Investor's shares of
Nonqualified Common equal to the product obtained by multiplying (x) the
number of Rule 144 Eligible Shares for such Rule 144 Quarter, times (y) the
sum of the Applicable Percentages for such Rule 144 Quarter for all holders
of Unvested Class C Common giving Election Notice with respect to such Rule
144 Quarter, shall without further action by the Company or the New Capital
Investor automatically be deemed forfeited, and the New Capital Investor
shall thereafter no longer exercise nor have the right to exercise any of
its rights with respect to such forfeited shares;
<PAGE>
(c) a number of the shares of Unvested Class C Common held by
each holder of Unvested Class C Common giving Election Notice with respect
to such Rule 144 Quarter equal to the difference (if any) obtained by
subtracting (i) the number of such holder's shares of Unvested Class C
Common that are to vest as a result of giving such Election Notice, from
(ii) the number of such holder's shares of Unvested Class C Common
that would vest as a result of giving such Election Notice if the Return
Multiple for such Rule 144 Quarter were 35, shall without further action by
the Company or such holder automatically be deemed forfeited, and such
holder shall thereafter no longer exercise nor have the right to exercise
any of its rights with respect to such forfeited shares.
1C. Vesting and Forfeiture upon Liquidation. Contemporaneously with
a complete liquidation of the Company (the "Liquidation"):
(a) a number (if any) of the shares of Unvested Class C Common
held by each holder of Unvested Class C Common shall vest equal to the
product obtained by multiplying (x) the number of shares of Qualified
Common held by New Capital Investor as of the date of the Liquidation,
times (y) such holder's Applicable Percentage for such Liquidation;
(b) a number (if any) of the New Capital Investor's shares of
Nonqualified Common equal to the product obtained by multiplying (i) the
number of shares of Qualified Common held by the New Capital Investor as of
the date of the Liquidation, times (ii) the sum of the Applicable
Percentages for all holders of Unvested Class C Common for such
Liquidation, shall without further action by the Company or the New Capital
Investor automatically be deemed forfeited, and the New Capital Investor
shall thereafter no longer exercise nor have the right to exercise any of
its rights with respect to such forfeited shares.
(c) a number of the shares of Unvested Class C Common held by
each holder of Unvested Class C Common equal to the difference (if any)
obtained by subtracting (i) the number of such holder's shares of Unvested
Class C Common that are to vest as a result of such Liquidation, from (ii)
the number of such holder's shares of Unvested Class C Common that would
vest as a result of such Liquidation if the Return Multiple for such
Liquidation were 35, shall without further action by the Company or such
holder automatically be deemed forfeited, and such holder shall thereafter
no longer exercise nor have the right to exercise any of its rights with
respect to such forfeited shares.
1D. Forfeiture upon Termination of this Agreement. Upon the seventh
anniversary of the date hereof, all Unvested Class C Common then outstanding
shall without further action by the Company or any holder of such Unvested Class
C Common automatically be deemed forfeited, and each such holder shall
thereafter no longer exercise nor have the right to exercise any of its rights
with respect to such forfeited shares.
1E. Forfeiture Procedure. Upon any forfeiture of any shares of
Unvested Class C Common or Nonqualified Common pursuant to this Agreement, the
holder of such forfeited shares shall promptly submit the certificate or
certificates representing such forfeited shares to the Company for cancellation.
Upon such submission, the Company shall take all actions necessary to retire
such
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<PAGE>
forfeited shares and to cause such shares to resume the status of authorized and
unissued shares. The Company shall promptly cancel the submitted certificate(s)
and issue to such holder (i) a certificate, bearing the legend set forth in
paragraph 5B below, representing the number of shares (if any) of Unvested Class
C Common or Nonqualified Common, as applicable, which were evidenced by the
submitted certificate(s) but which were not forfeited, and (ii) a certificate,
not bearing the legend set forth in paragraph 4B below, representing the number
of shares represented by the submitted certificate(s) that were not forfeited
and that in connection with such forfeiture ceased to be Nonqualified Common or
became Vested Class C Common, as applicable.
Section 2. Calculation of Each Holder's Applicable Percentage.
2A. Applicable Percentage. For each Sale, Liquidation, or Rule 144
Quarter, the "Applicable Percentage" for each holder of Unvested Class C Common
shall be equal to the percentage obtained by multiplying:
(a) 25% (or if such holder is no longer employed by the Company
or any of its Subsidiaries ("Termination"), the product of (i) 25%, times
(ii) a fraction, the numerator of which is the number of shares of Unvested
Class C Common held by such holder immediately prior to Termination that
were not elected to be repurchased pursuant to an Executive Stock Agreement
as a result of such Termination, and the denominator of which is the number
of shares of Unvested Class C Common held by such holder immediately prior
to such Termination); times
(b) the quotient obtained by dividing (x) the Return Multiple for
such Sale, Liquidation, or Rule 144 Quarter minus 20 (provided that such
difference shall not be less than zero nor greater than 15), by (y) 65.
2B. Calculation of the Return Multiple.
(a) The "Return Multiple" for each Sale shall be equal to the quotient
obtained by dividing:
(i) the Fair Market Value of all consideration that the New
Capital Investor will receive in such Sale in exchange for the shares of
Qualified Common to be transferred or sold by the New Capital Investor in
such Sale, by
(ii) the Total Cost and Contributions for the shares of Qualified
Common to be transferred or sold by the New Capital Investor in such Sale
(as well as any shares of Nonqualified Common that will be forfeited
pursuant to this Agreement in connection with such Sale).
(b) The "Return Multiple" for each Liquidation shall be equal to the
quotient obtained by dividing:
(i) the Fair Market Value of all consideration to be distributed
in such Liquidation to the New Capital Investor with respect to the shares
of Qualified Common held by the New Capital Investor as of the date of such
Liquidation, by
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<PAGE>
(ii) the Total Cost and Contributions for the shares of Qualified
Common held by the New Capital Investor as of the date of such Liquidation
(as well as any shares of Nonqualified Common that will be forfeited
pursuant to this Agreement in connection with such Liquidation).
(c) The "Return Multiple" for each Rule 144 Quarter shall be equal to
the quotient obtained by dividing:
(i) the Fair Market Value of all of the New Capital Investor's
Rule 144 Eligible Shares for such Rule 144 Quarter, by
(ii) the Total Cost and Contributions for the New Capital
Investor's Rule 144 Eligible Shares for such Rule 144 Quarter (as well as
any shares of Nonqualified Common to be forfeited pursuant to this
Agreement by virtue of all Election Notices filed with respect to such Rule
144 Quarter).
Section 3. Definitions.
"Executive Stock Agreements" means the executive stock agreements of
even date herewith, each by and between the Company and one Executive Investor,
as amended from time to time pursuant to their terms.
"Fair Market Value" shall mean:
(i) with respect to any Rule 144 Eligible Share, the weighted
average (based on the volume of trading in shares of the class of the
Company's common stock that includes the Rule 144 Eligible Shares (the
Company's "Common Stock") on each business day during the Rule 144 Quarter)
over all of the business days during such Rule 144 Quarter, of the average
of the closing prices of the sales of such Common Stock on all securities
exchanges on which such Common Stock may at that time be listed, or, if
there have been no sales on any such exchange on any day, the average of
the highest bid and lowest asked prices on all such exchanges at the end of
such day, or, if on any day the Common Stock is not so listed, the average
of the representative bid and asked prices quoted in the NASDAQ System as
of 4:00 P.M., New York time, or, if on any day the Common Stock is not
quoted in the NASDAQ System, the average of the highest bid and lowest
asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau Incorporated, or any similar
successor organization; and
(ii) with respect to consideration received in a Sale or
Liquidation, the amount of all cash consideration received plus the fair
market value of all other consideration received (as shall be determined in
good faith by the New Capital Investor).
"Nonqualified Common" means 8,653.85 of the shares of Class A Common
purchased by the New Capital Investor under the Stock Purchase Agreement
(together with any
- 5 -
<PAGE>
shares issued with respect to such shares of Nonqualified Common, including any
stock splits, stock dividends, or recapitalizations); provided that
(i) contemporaneously with a Sale, the number of shares of
Nonqualified Common that would be forfeited in connection with such Sale if
the Return Multiple for such Sale were 35 shall (whether or not actually
forfeited in connection with such Sale) forever cease to be Nonqualified
Common,
(ii) if any holder or holders of Unvested Class C Common give(s)
Election Notice with respect to a Rule 144 Quarter, the number of shares of
Nonqualified Common that would be forfeited in connection with such Rule
144 Quarter if the Return Multiple for such Rule 144 Quarter were 35 shall
(whether or not actually forfeited in connection with such Rule 144
Quarter) forever cease to be Nonqualified Common, and
(iii) contemporaneously with a Liquidation or termination of
this Agreement, any and all shares of Nonqualified Common then held by the
New Capital Investor shall forever cease to be Nonqualified Common,
(iv) if any shares of an Executive Investor's Unvested Class C
Common are repurchased pursuant to the provisions of an Executive Stock
Agreement, or if any Executive Investor waives (pursuant to paragraph 5G
below) his right to have any of his shares of Unvested Class C Common vest,
a number of New Capital Investor's shares of Nonqualified Common shall vest
equal to the number of shares of Unvested Class C Common so repurchased or
of which the rights to vest are so waived.
"Public Offering" means the initial underwritten sale of the company's
common stock pursuant to an effective registration statement under the
Securities Act filed with the Securities and Exchange Commission on Form S-1 (or
a successor form adopted by the Securities and Exchange Commission); provided
that the following shall not be considered a Public Offering: (i) any issuance
of common stock as consideration or financing for a merger or acquisition, and
(ii) any issuance of common stock or rights to acquire common stock to employees
of the Company or its Subsidiaries as part of an incentive or compensation plan.
"Qualified Common" means 37,500 of the shares of Class A Common
purchased by the New Capital Investor under the Stock Purchase Agreement
(together with any shares issued with respect to such shares of Qualified
Common, including by any stock splits, stock dividends, or recapitalizations),
provided that any such share shall forever cease to be Qualified Common (i) upon
a Liquidation, (ii) when such share has been sold or transferred in a Sale, or
(iii) upon termination of this Agreement; and provided further that if any
holder of Unvested Class C Common gives Election Notice with respect to a Rule
144 Quarter, all Rule 144 Eligible Shares for such Rule 144 Quarter shall, for
all purposes as to such electing holder, thereafter forever cease to be
Qualified Common.
"Successor Fund" means, with respect to the New Capital Investor, any
private equity fund formed for the principal purpose of making equity
investments, where such fund is managed by the same principal parties having
management responsibility for the New Capital Investor.
- 6 -
<PAGE>
"Total Cost and Contributions" means, with respect to each share of
Qualified Common or Nonqualified Common held by the New Capital Investor on any
specified date, the sum of (i) the New Capital Investor's Initial Contribution
(as that term is defined in the Stock Purchase Agreement) divided by the
aggregate number of shares of Class A Common purchased by the New Capital
Investor under the Stock Purchase Agreement (as adjusted for stock splits, stock
dividends, recapitalizations, and other reorganizations, the "Original Class A
Common"), and (ii) for all Subsequent Contributions (as that term is defined in
the Stock Purchase Agreement) made by the New Capital Investor from the date
hereof through such specified date, the quotient obtained by dividing (x) the
amount of each such Subsequent Contribution by the aggregate number of shares of
Original Class A Common held by the New Capital Investor as of the date of each
such Subsequent Contribution.
"Unvested Class C Common" means, as to each Executive Investor,
2,163.4625 of the shares of Class C Common issued as of the date hereof
(together with shares issued with respect to such shares of Unvested Class C
Common as part of any stock split, stock dividend, or recapitalization);
provided that any such share shall forever cease to be Unvested Class C Common
when it has been (i) repurchased by the Company, an Investor, or an executive
employee of the Company or its Subsidiaries pursuant to paragraph 3 of an
Executive Stock Agreement, (ii) forfeited pursuant to the terms of this
Agreement, or (iii) vested pursuant to the terms of this Agreement (at which
time, such share shall become Vested Class C Common).
"Vested Class C Common" means all shares of Unvested Class C Common
that have vested pursuant to the terms of this Agreement (and thereby ceased to
be Unvested Class C Common).
Section 4. Pledge of Unvested Class C Common.
4A. Pledge. Each Executive Investor hereby initially pledges to the
New Capital Investor, and grants to the New Capital Investor a security interest
in such Executive Investor's Unvested Class C Common (such Executive Investor's
"Pledged Shares") as security for its duties and obligations pursuant to this
Agreement.
4B. Delivery of Pledged Shares. Upon the execution of this
Agreement, each Executive Investor shall deliver to the New Capital Investor the
certificate(s) representing such Executive Investor's Pledged Shares, together
with duly executed forms of assignment sufficient to transfer title thereto to
the New Capital Investor.
4C. Status as Holder. For purposes of determinations and
calculations under this Agreement, each Executive Investor shall be deemed to be
the holder of such Executive Investor's Pledged Shares.
4D. Distributions, Other Certificates, etc. If any Executive
Investor becomes entitled to receive or receives any securities or other
property with respect to, in substitution of, or in exchange for any of such
Executive Investor's Pledged Shares (whether as a distribution in connection
with any recapitalization, reorganization or reclassification, a stock dividend
or
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<PAGE>
otherwise), or any certificate(s) representing any of such Executive Investor's
Pledged Shares, such Executive Investor shall accept such securities, property,
or certificate(s) on behalf of and for the benefit of the New Capital Investor
as additional security for such Executive Investor's obligations hereunder and
shall promptly deliver such additional security to the New Capital Investor
together with duly executed forms of assignment, and such additional security
shall be deemed to be part of such Executive Investor's Pledged Shares.
4E. Delivery to and by the New Capital Investor. If the Company
issues any certificate representing Pledged Shares, the Company shall in keeping
with the purpose of paragraph 4D deliver such certificate directly to the New
Capital Investor. If the holder of such Pledged Shares is required pursuant to
the terms of this Agreement to transfer any certificate representing Pledged
Shares to the Company for cancellation, the New Capital Investor shall transfer
such certificate to the Company on behalf of such holder.
4F. Release of Pledged Shares upon Vesting. Upon any of Executive
Investor's Pledged Shares becoming Vested Class C Common pursuant to this
Agreement, the New Capital Investor shall deliver to such Executive Investor the
certificate or certificates representing such shares of Vested Class C Common
(or, if necessary, the New Capital Investor shall submit the certificate or
certificates representing such Vested Class C Common to the Company, and the
Company shall issue to such Executive Investor a certificate representing the
number of shares of Vested Class C Common represented by such submitted
certificate(s), and shall deliver to the New Capital Investor a certificate
(issued in such Executive Investor's name) representing the number of shares of
Class C Common which were represented by such submitted certificate(s) but which
were not Vested Class C Common and not forfeited), and such Vested Class C
Common shall no longer constitute part of such Executive Investor's Pledged
Shares.
4G. Voting Proxy. Each Executive Investor hereby appoints the New
Capital Investor as his true and lawful proxy and attorney-in fact, with full
power of substitution, to vote all of such Executive Investor's Pledged Shares
on all matters to be voted on by the Company's shareholders. These proxies and
powers granted by each Executive Investor pursuant to this paragraph 4G are
coupled with an interest, and are given to secure each Executive Investor's
obligations to the New Capital Investor under this Agreement. Such proxies and
powers shall be irrevocable with respect to each such Pledged Share (and shall
survive the death, disability, incompetency, or bankruptcy of such Executive
Investor) until such time as such Pledged Share becomes Vested Class C Common
pursuant to the provisions of this Agreement and thereby ceases to be a Pledged
Share, at which time such proxy shall be deemed revoked with respect to such
share (but not with respect to any shares of such holder that remain Pledged
Shares).
4H. Further Assurances. Each Executive Investor agrees that at any
time and from time to time upon the request of the New Capital Investor, such
Executive Investor shall execute and deliver such further documents and take
such further actions as the New Capital Investor may reasonably request in order
to effect the purpose of this Agreement.
Section 5. Miscellaneous.
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<PAGE>
5A. New Capital Investor Determinations. All calculations and other
determinations under provisions of this Agreement (including the final
determination of the Fair Market Value of Rule 144 Eligible Shares) shall be
performed and made in good faith by the New Capital Investor, and such good
faith determinations shall be binding on all parties hereto. The Company and
the Executive Investors shall deliver to the New Capital Investor such
information as the New Capital Investor may reasonably request in connection
with performing such calculations or making such determinations.
5B. Restrictive Legend. Each certificate evidencing shares of
Nonqualified Common and Unvested Class C Common shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
FORFEITURE PROVISIONS SET FORTH IN A VESTING AGREEMENT DATED AS OF
NOVEMBER 27, 1996, BY AND AMONG THE ISSUER OF SUCH SECURITIES, AND
CERTAIN PERSONS LISTED ON THE SIGNATURE PAGES ATTACHED THERETO, AS
AMENDED FROM TIME TO TIME PURSUANT TO ITS TERMS. A COPY OF SUCH
VESTING AGREEMENT SHALL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO
THE HOLDER HEREOF UPON WRITTEN REQUEST."
The legend set forth above shall be removed from the certificates evidencing any
of the above shares when such shares cease to be Nonqualified Common or Unvested
Class C Common, as applicable.
5C. Complete Agreement. This Agreement, those documents expressly
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
5D. Counterparts. This Agreement may be executed in separate
counterparts, none of which need contain the signature of more than one party
hereto but each of which shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
5E. Successors and Assigns. Except as otherwise provided herein,
this Agreement shall bind the parties hereto and their respective successors and
assigns and shall inure to the benefit of and be enforceable by the parties
hereto and their respective successors and assigns. Notwithstanding the
foregoing, the Executive Investors shall not transfer any Unvested Class C
Common to any person, except (i) pursuant to the pledge and forfeiture
provisions of this Agreement, or (ii) to the executor of such Executive
Investor's estate, at which time such executor shall sign a counterpart to this
Agreement agreeing to stand in the place of the Executive Investor and be bound
by the provisions hereof with respect to such shares of Unvested Class C Common.
- 9 -
<PAGE>
5F. Choice of Law. The corporate law of the State of Delaware shall
govern all questions concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement and the exhibits hereto shall
be governed by the internal law, and not the law of conflicts, of the State of
Illinois.
5G. Amendment and Waiver. The provisions of this Agreement may be
amended and waived only with the prior written consent of the Company, the New
Capital Investor and the holders of a majority of the shares of Unvested Class C
Common then outstanding, and such an amendment or waiver shall be binding on all
parties; provided that any holder of Unvested Class C Common may waive the
rights under this Agreement to have the shares of Unvested Class C Common held
by such holder vest (upon such waiver, such shares the rights to vest of which
are waived shall be treated for purposes of this Agreement (including paragraph
2A(c) and Section 3) as if they had been repurchased pursuant to the repurchase
provisions of an Executive Stock Agreement.
5H. Notice. Any notice provided for in this Agreement shall be in
writing and shall be deemed to have been given when personally delivered to the
recipient, three business days after being mailed to the recipient by first
class mail (postage prepaid and return receipt requested), or one business day
after being sent to the recipient by reputable overnight courier service
(charges prepaid). Such notices shall be sent to each recipient at the address
specified for such recipient in the Stock Purchase Agreement, or to such other
address or to the attention of such other person as the recipient party shall
have specified by prior written notice to the sending party. Any notice given by
a holder of Unvested Class C Common pursuant to paragraph 1B hereof shall, in
addition to the other requirements for such notice set forth in paragraph 1B,
state in a conspicuous manner that, subject to the conditions and determinations
contemplated thereby, the events described therein are scheduled to occur on the
20th day following the end of the Rule 144 Quarter (and the notice shall
conspicuously specify the actual date that is such 20th day).
5I. Remedies. Each of the parties to this Agreement shall be
entitled to enforce its rights under this Agreement specifically, to recover
damages and costs (including reasonable attorney's fees) caused by any breach of
any provision of this Agreement and to exercise all other rights existing in its
favor. The parties hereto agree and acknowledge that money damages would not be
an adequate remedy for any breach of the provisions of this Agreement and that
any party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or deposit) for specific
performance and/or other injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement.
5J. Termination. The provisions of this Agreement shall terminate
upon the earlier of (i) the first date upon which there remains either no
Unvested Class C Common outstanding, and (ii) the seventh anniversary of the
date hereof; provided that the obligations under this Agreement with respect to
any events resulting in the termination hereof shall survive such termination.
* * * *
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
MADISON DEARBORN CAPITAL PARTNERS, L.P.
By Madison Dearborn Partners, L.P., its General Partner
By Madison Dearborn Partners, Inc., its General Partner
By:
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Its:
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Brian F. Addy
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John R. Barnicle
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Joseph Beatty
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Robert C. Taylor, Jr.
FOCAL COMMUNICATIONS CORPORATION
By:
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Its:
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<PAGE>
EXHIBIT 4.2
VESTING AGREEMENT
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THIS VESTING AGREEMENT (this "Agreement") is made as of November 27,
1996, by and among Frontenac VI, L.P. (the "New Capital Investor"), Focal
Communications Corporation (the "Company"), and each of Robert C. Taylor, Jr.,
John R. Barnicle, Brian F. Addy and Joseph Beatty (individually an "Executive
Investor" and collectively the "Executive Investors").
The execution and delivery of this Agreement is a condition to the
purchase of the Company's Class A Common Stock, par value $.01 per share (the
"Class A Common"), by the New Capital Investor, the Executive Investors and
certain other investors (collectively, the "Investors"), pursuant to a Stock
Purchase Agreement of even date herewith by and among the Company and such
Investors (the "Stock Purchase Agreement"). Capitalized terms used but not
otherwise defined herein are used herein with the meanings ascribed to such
terms in Sections 2 and 3 below.
NOW, THEREFORE, in consideration of the mutual premises made herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
Section 1. Vesting and Forfeiture.
1A. Vesting and Forfeiture upon a Sale. Contemporaneously with any
sale or transfer by the New Capital Investor to any person of any shares of
Qualified Common (including by way of merger or consolidation, but excluding (i)
any sale or transfer of shares to a Successor Fund upon such Successor Fund's
execution of a counterpart to this Agreement agreeing to be bound by the
provisions hereof and to succeed to the rights and obligations of New Capital
Investor hereunder with respect to the shares of Qualified Common sold or
transferred to such Successor Fund, and (ii) any recapitalization or other
reorganization in which the New Capital Investor's holdings of the Company's
equity immediately after such transaction are equal to the New Capital
Investor's holdings of the Company's equity immediately prior to such
transaction) (a "Sale"):
(a) a number (if any) of the shares of Unvested Class C Common
held by each holder of Unvested Class C Common shall vest equal to the
product obtained by multiplying (x) the number of shares of Qualified
Common being transferred in such Sale, times (y) such holder's Applicable
Percentage for such Sale;
(b) a number (if any) of the New Capital Investor's shares of
Nonqualified Common equal to the product obtained by multiplying (i) the
number of shares of Qualified Common being transferred in such Sale, times
(ii) the sum of the Applicable Percentages for all holders of Unvested
Class C Common for such Sale, shall without further action by the Company
or the New Capital Investor automatically be deemed forfeited, and the New
Capital Investor shall thereafter no longer exercise nor have the right to
exercise any of its rights with respect to such forfeited shares; and
<PAGE>
(c) a number of the shares of Unvested Class C Common held by
each holder of Unvested Class C Common equal to the difference (if any)
obtained by subtracting (i) the number of such holder's shares of Unvested
Class C Common that are to vest as a result of such Sale, from (ii) the
number of such holder's shares of Unvested Class C Common that would vest
as a result of such Sale if the Return Multiple for such Sale were 35,
shall without further action by the Company or such holder automatically be
deemed forfeited, and such holder shall thereafter no longer exercise nor
have the right to exercise any of its rights with respect to such forfeited
shares.
1B. Vesting and Forfeiture upon Election Notice following a Rule 144
Quarter. If, within 10 business days after any calendar quarter (following the
consummation of the Company's initial Public Offering) during which any shares
of Qualified Common then held by the New Capital Investor (excluding (i) shares
sold or transferred pursuant to a Sale during such calendar quarter, and (ii)
shares the transfer of which during such calendar quarter would have been
restricted under any hold-back agreement entered into with, or for the benefit
of, the Company or its underwriters) are eligible to be transferred pursuant to
Rule 144 promulgated by the Securities Exchange Commission under the Securities
Act of 1933, as amended, or any successor rule or rules then in effect ("Rule
144") as of the last business day of such calendar quarter (such a calendar
quarter, a "Rule 144 Quarter") (such eligible shares, the "Rule 144 Eligible
Shares"), any holder of Unvested Class C Common gives written notice to the New
Capital Investor setting forth the number of Rule 144 Eligible Shares for such
Rule 144 Quarter, such holder's estimated calculation of the Fair Market Value
of such Rule 144 Eligible Shares (including all market information necessary to
enable the New Capital Investor to perform such calculation), and such holder's
estimated calculation of the number of such holder's shares of Unvested Class C
Common that will vest pursuant to paragraph 1B(a) with respect to such Rule 144
Quarter ("Election Notice"), then on the 20th business day following such Rule
144 Quarter:
(a) a number (if any) of the shares of Unvested Class C Common
held by each such electing holder shall vest equal to the product obtained
by multiplying (x) the number of Rule 144 Eligible Shares for such Rule 144
Quarter, times (y) such holder's Applicable Percentage for such Rule 144
Quarter;
(b) a number (if any) of the New Capital Investor's shares of
Nonqualified Common equal to the product obtained by multiplying (x) the
number of Rule 144 Eligible Shares for such Rule 144 Quarter, times (y) the
sum of the Applicable Percentages for such Rule 144 Quarter for all holders
of Unvested Class C Common giving Election Notice with respect to such Rule
144 Quarter, shall without further action by the Company or the New Capital
Investor automatically be deemed forfeited, and the New Capital Investor
shall thereafter no longer exercise nor have the right to exercise any of
its rights with respect to such forfeited shares;
(c) a number of the shares of Unvested Class C Common held by
each holder of Unvested Class C Common giving Election Notice with respect
to such Rule 144 Quarter equal to the difference (if any) obtained by
subtracting (i) the number of such
<PAGE>
holder's shares of Unvested Class C Common that are to vest as a result of
giving such Election Notice, from (ii) the number of such holder's shares
of Unvested Class C Common that would vest as a result of giving such
Election Notice if the Return Multiple for such Rule 144 Quarter were 35,
shall without further action by the Company or such holder automatically be
deemed forfeited, and such holder shall thereafter no longer exercise nor
have the right to exercise any of its rights with respect to such forfeited
shares.
1C. Vesting and Forfeiture upon Liquidation. Contemporaneously with
a complete liquidation of the Company (the "Liquidation"):
(a) a number (if any) of the shares of Unvested Class C Common
held by each holder of Unvested Class C Common shall vest equal to the
product obtained by multiplying (x) the number of shares of Qualified
Common held by New Capital Investor as of the date of the Liquidation,
times (y) such holder's Applicable Percentage for such Liquidation;
(b) a number (if any) of the New Capital Investor's shares of
Nonqualified Common equal to the product obtained by multiplying (i) the
number of shares of Qualified Common held by the New Capital Investor as of
the date of the Liquidation, times (ii) the sum of the Applicable
Percentages for all holders of Unvested Class C Common for such
Liquidation, shall without further action by the Company or the New Capital
Investor automatically be deemed forfeited, and the New Capital Investor
shall thereafter no longer exercise nor have the right to exercise any of
its rights with respect to such forfeited shares.
(c) a number of the shares of Unvested Class C Common held by
each holder of Unvested Class C Common equal to the difference (if any)
obtained by subtracting (i) the number of such holder's shares of Unvested
Class C Common that are to vest as a result of such Liquidation, from (ii)
the number of such holder's shares of Unvested Class C Common that would
vest as a result of such Liquidation if the Return Multiple for such
Liquidation were 35, shall without further action by the Company or such
holder automatically be deemed forfeited, and such holder shall thereafter
no longer exercise nor have the right to exercise any of its rights with
respect to such forfeited shares.
1D. Forfeiture upon Termination of this Agreement. Upon the seventh
anniversary of the date hereof, all Unvested Class C Common then outstanding
shall without further action by the Company or any holder of such Unvested Class
C Common automatically be deemed forfeited, and each such holder shall
thereafter no longer exercise nor have the right to exercise any of its rights
with respect to such forfeited shares.
1E. Forfeiture Procedure. Upon any forfeiture of any shares of
Unvested Class C Common or Nonqualified Common pursuant to this Agreement, the
holder of such forfeited shares shall promptly submit the certificate or
certificates representing such forfeited shares to the Company for cancellation.
Upon such submission, the Company shall take all actions necessary to retire
such forfeited shares and to cause such shares to resume the status of
authorized and unissued shares. The Company shall promptly cancel the submitted
certificate(s) and issue to such holder (i) a certificate, bearing the legend
set forth in paragraph 5B below, representing the number of shares (if any) of
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Unvested Class C Common or Nonqualified Common, as applicable, which were
evidenced by the submitted certificate(s) but which were not forfeited, and (ii)
a certificate, not bearing the legend set forth in paragraph 4B below,
representing the number of shares represented by the submitted certificate(s)
that were not forfeited and that in connection with such forfeiture ceased to be
Nonqualified Common or became Vested Class C Common, as applicable.
Section 2. Calculation of Each Holder's Applicable Percentage.
2A. Applicable Percentage. For each Sale, Liquidation, or Rule 144
Quarter, the "Applicable Percentage" for each holder of Unvested Class C Common
shall be equal to the percentage obtained by multiplying:
(a) 25% (or if such holder is no longer employed by the Company
or any of its Subsidiaries ("Termination"), the product of (i) 25%, times
(ii) a fraction, the numerator of which is the number of shares of Unvested
Class C Common held by such holder immediately prior to Termination that
were not elected to be repurchased pursuant to an Executive Stock Agreement
as a result of such Termination, and the denominator of which is the number
of shares of Unvested Class C Common held by such holder immediately prior
to such Termination); times
(b) the quotient obtained by dividing (x) the Return Multiple for
such Sale, Liquidation, or Rule 144 Quarter minus 20 (provided that such
difference shall not be less than zero nor greater than 15), by (y) 65.
2B. Calculation of the Return Multiple.
(a) The "Return Multiple" for each Sale shall be equal to the quotient
obtained by dividing:
(i) the Fair Market Value of all consideration that the New
Capital Investor will receive in such Sale in exchange for the shares of
Qualified Common to be transferred or sold by the New Capital Investor in
such Sale, by
(ii) the Total Cost and Contributions for the shares of Qualified
Common to be transferred or sold by the New Capital Investor in such Sale
(as well as any shares of Nonqualified Common that will be forfeited
pursuant to this Agreement in connection with such Sale).
(b) The "Return Multiple" for each Liquidation shall be equal to the
quotient obtained by dividing:
(i) the Fair Market Value of all consideration to be distributed
in such Liquidation to the New Capital Investor with respect to the shares
of Qualified Common held by the New Capital Investor as of the date of such
Liquidation, by
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<PAGE>
(ii) the Total Cost and Contributions for the shares of Qualified
Common held by the New Capital Investor as of the date of such Liquidation
(as well as any shares of Nonqualified Common that will be forfeited
pursuant to this Agreement in connection with such Liquidation).
(c) The "Return Multiple" for each Rule 144 Quarter shall be equal to
the quotient obtained by dividing:
(i) the Fair Market Value of all of the New Capital Investor's
Rule 144 Eligible Shares for such Rule 144 Quarter, by
(ii) the Total Cost and Contributions for the New Capital
Investor's Rule 144 Eligible Shares for such Rule 144 Quarter (as well as
any shares of Nonqualified Common to be forfeited pursuant to this
Agreement by virtue of all Election Notices filed with respect to such Rule
144 Quarter).
Section 3. Definitions.
"Executive Stock Agreements" means the executive stock agreements of
even date herewith, each by and between the Company and one Executive Investor,
as amended from time to time pursuant to their terms.
"Fair Market Value" shall mean:
(i) with respect to any Rule 144 Eligible Share, the weighted
average (based on the volume of trading in shares of the class of the
Company's common stock that includes the Rule 144 Eligible Shares (the
Company's "Common Stock") on each business day during the Rule 144 Quarter)
over all of the business days during such Rule 144 Quarter, of the average
of the closing prices of the sales of such Common Stock on all securities
exchanges on which such Common Stock may at that time be listed, or, if
there have been no sales on any such exchange on any day, the average of
the highest bid and lowest asked prices on all such exchanges at the end of
such day, or, if on any day the Common Stock is not so listed, the average
of the representative bid and asked prices quoted in the NASDAQ System as
of 4:00 P.M., New York time, or, if on any day the Common Stock is not
quoted in the NASDAQ System, the average of the highest bid and lowest
asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau Incorporated, or any similar
successor organization; and
(ii) with respect to consideration received in a Sale or
Liquidation, the amount of all cash consideration received plus the fair
market value of all other consideration received (as shall be determined in
good faith by the New Capital Investor).
"Nonqualified Common" means 4,038.46 of the shares of Class A Common
purchased by the New Capital Investor under the Stock Purchase Agreement
(together with any shares issued with respect to such shares of Nonqualified
Common, including any stock splits, stock dividends, or recapitalizations);
provided that
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(i) contemporaneously with a Sale, the number of shares of
Nonqualified Common that would be forfeited in connection with such Sale if
the Return Multiple for such Sale were 35 shall (whether or not actually
forfeited in connection with such Sale) forever cease to be Nonqualified
Common,
(ii) if any holder or holders of Unvested Class C Common give(s)
Election Notice with respect to a Rule 144 Quarter, the number of shares of
Nonqualified Common that would be forfeited in connection with such Rule
144 Quarter if the Return Multiple for such Rule 144 Quarter were 35 shall
(whether or not actually forfeited in connection with such Rule 144
Quarter) forever cease to be Nonqualified Common, and
(iii) contemporaneously with a Liquidation or termination of
this Agreement, any and all shares of Nonqualified Common then held by the
New Capital Investor shall forever cease to be Nonqualified Common,
(iv) if any shares of an Executive Investor's Unvested Class C
Common are repurchased pursuant to the provisions of an Executive Stock
Agreement, or if any Executive Investor waives (pursuant to paragraph 5G
below) his right to have any of his shares of Unvested Class C Common vest,
a number of New Capital Investor's shares of Nonqualified Common shall vest
equal to the number of shares of Unvested Class C Common so repurchased or
of which the rights to vest are so waived.
"Public Offering" means the initial underwritten sale of the company's
common stock pursuant to an effective registration statement under the
Securities Act filed with the Securities and Exchange Commission on Form S-1 (or
a successor form adopted by the Securities and Exchange Commission); provided
that the following shall not be considered a Public Offering: (i) any issuance
of common stock as consideration or financing for a merger or acquisition, and
(ii) any issuance of common stock or rights to acquire common stock to employees
of the Company or its Subsidiaries as part of an incentive or compensation plan.
"Qualified Common" means 17,500 of the shares of Class A Common
purchased by the New Capital Investor under the Stock Purchase Agreement
(together with any shares issued with respect to such shares of Qualified
Common, including by any stock splits, stock dividends, or recapitalizations),
provided that any such share shall forever cease to be Qualified Common (i) upon
a Liquidation, (ii) when such share has been sold or transferred in a Sale, or
(iii) upon termination of this Agreement; and provided further that if any
holder of Unvested Class C Common gives Election Notice with respect to a Rule
144 Quarter, all Rule 144 Eligible Shares for such Rule 144 Quarter shall, for
all purposes as to such electing holder, thereafter forever cease to be
Qualified Common.
"Successor Fund" means, with respect to the New Capital Investor, any
private equity fund formed for the principal purpose of making equity
investments, where such fund is managed by the same principal parties having
management responsibility for the New Capital Investor.
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<PAGE>
"Total Cost and Contributions" means, with respect to each share of
Qualified Common or Nonqualified Common held by the New Capital Investor on any
specified date, the sum of (i) the New Capital Investor's Initial Contribution
(as that term is defined in the Stock Purchase Agreement) divided by the
aggregate number of shares of Class A Common purchased by the New Capital
Investor under the Stock Purchase Agreement (as adjusted for stock splits, stock
dividends, recapitalizations, and other reorganizations, the "Original Class A
Common"), and (ii) for all Subsequent Contributions (as that term is defined in
the Stock Purchase Agreement) made by the New Capital Investor from the date
hereof through such specified date, the quotient obtained by dividing (x) the
amount of each such Subsequent Contribution by the aggregate number of shares of
Original Class A Common held by the New Capital Investor as of the date of each
such Subsequent Contribution.
"Unvested Class C Common" means, as to each Executive Investor,
1,009.615 of the shares of Class C Common issued as of the date hereof (together
with shares issued with respect to such shares of Unvested Class C Common as
part of any stock split, stock dividend, or recapitalization); provided that any
such share shall forever cease to be Unvested Class C Common when it has been
(i) repurchased by the Company, an Investor, or an executive employee of the
Company or its Subsidiaries pursuant to paragraph 3 of an Executive Stock
Agreement, (ii) forfeited pursuant to the terms of this Agreement, or (iii)
vested pursuant to the terms of this Agreement (at which time, such share shall
become Vested Class C Common).
"Vested Class C Common" means all shares of Unvested Class C Common
that have vested pursuant to the terms of this Agreement (and thereby ceased to
be Unvested Class C Common).
Section 4. Pledge of Unvested Class C Common.
4A. Pledge. Each Executive Investor hereby initially pledges to the
New Capital Investor, and grants to the New Capital Investor a security interest
in such Executive Investor's Unvested Class C Common (such Executive Investor's
"Pledged Shares") as security for its duties and obligations pursuant to this
Agreement.
4B. Delivery of Pledged Shares. Upon the execution of this
Agreement, each Executive Investor shall deliver to the New Capital Investor the
certificate(s) representing such Executive Investor's Pledged Shares, together
with duly executed forms of assignment sufficient to transfer title thereto to
the New Capital Investor.
4C. Status as Holder. For purposes of determinations and
calculations under this Agreement, each Executive Investor shall be deemed to be
the holder of such Executive Investor's Pledged Shares.
4D. Distributions, Other Certificates, etc. If any Executive
Investor becomes entitled to receive or receives any securities or other
property with respect to, in substitution of, or in exchange for any of such
Executive Investor's Pledged Shares (whether as a distribution in connection
with any recapitalization, reorganization or reclassification, a stock dividend
or otherwise), or any certificate(s) representing any of such Executive
Investor's Pledged Shares, such
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<PAGE>
Executive Investor shall accept such securities, property, or certificate(s) on
behalf of and for the benefit of the New Capital Investor as additional security
for such Executive Investor's obligations hereunder and shall promptly deliver
such additional security to the New Capital Investor together with duly executed
forms of assignment, and such additional security shall be deemed to be part of
such Executive Investor's Pledged Shares.
4E. Delivery to and by the New Capital Investor. If the Company
issues any certificate representing Pledged Shares, the Company shall in keeping
with the purpose of paragraph 4D deliver such certificate directly to the New
Capital Investor. If the holder of such Pledged Shares is required pursuant to
the terms of this Agreement to transfer any certificate representing Pledged
Shares to the Company for cancellation, the New Capital Investor shall transfer
such certificate to the Company on behalf of such holder.
4F. Release of Pledged Shares upon Vesting. Upon any of Executive
Investor's Pledged Shares becoming Vested Class C Common pursuant to this
Agreement, the New Capital Investor shall deliver to such Executive Investor the
certificate or certificates representing such shares of Vested Class C Common
(or, if necessary, the New Capital Investor shall submit the certificate or
certificates representing such Vested Class C Common to the Company, and the
Company shall issue to such Executive Investor a certificate representing the
number of shares of Vested Class C Common represented by such submitted
certificate(s), and shall deliver to the New Capital Investor a certificate
(issued in such Executive Investor's name) representing the number of shares of
Class C Common which were represented by such submitted certificate(s) but which
were not Vested Class C Common and not forfeited), and such Vested Class C
Common shall no longer constitute part of such Executive Investor's Pledged
Shares.
4G. Voting Proxy. Each Executive Investor hereby appoints the New
Capital Investor as his true and lawful proxy and attorney-in fact, with full
power of substitution, to vote all of such Executive Investor's Pledged Shares
on all matters to be voted on by the Company's shareholders. These proxies and
powers granted by each Executive Investor pursuant to this paragraph 4G are
coupled with an interest, and are given to secure each Executive Investor's
obligations to the New Capital Investor under this Agreement. Such proxies and
powers shall be irrevocable with respect to each such Pledged Share (and shall
survive the death, disability, incompetency, or bankruptcy of such Executive
Investor) until such time as such Pledged Share becomes Vested Class C Common
pursuant to the provisions of this Agreement and thereby ceases to be a Pledged
Share, at which time such proxy shall be deemed revoked with respect to such
share (but not with respect to any shares of such holder that remain Pledged
Shares).
4H. Further Assurances. Each Executive Investor agrees that at any
time and from time to time upon the request of the New Capital Investor, such
Executive Investor shall execute and deliver such further documents and take
such further actions as the New Capital Investor may reasonably request in order
to effect the purpose of this Agreement.
Section 5. Miscellaneous.
5A. New Capital Investor Determinations. All calculations and other
determinations under provisions of this Agreement (including the final
determination of the Fair
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<PAGE>
Market Value of Rule 144 Eligible Shares) shall be performed and made in good
faith by the New Capital Investor, and such good faith determinations shall be
binding on all parties hereto. The Company and the Executive Investors shall
deliver to the New Capital Investor such information as the New Capital Investor
may reasonably request in connection with performing such calculations or making
such determinations.
5B. Restrictive Legend. Each certificate evidencing shares of
Nonqualified Common and Unvested Class C Common shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO FORFEITURE PROVISIONS SET FORTH IN A VESTING AGREEMENT
DATED AS OF NOVEMBER 27, 1996, BY AND AMONG THE ISSUER OF
SUCH SECURITIES, AND CERTAIN PERSONS LISTED ON THE SIGNATURE
PAGES ATTACHED THERETO, AS AMENDED FROM TIME TO TIME
PURSUANT TO ITS TERMS. A COPY OF SUCH VESTING AGREEMENT
SHALL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE
HOLDER HEREOF UPON WRITTEN REQUEST."
The legend set forth above shall be removed from the certificates evidencing any
of the above shares when such shares cease to be Nonqualified Common or Unvested
Class C Common, as applicable.
5C. Complete Agreement. This Agreement, those documents expressly
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
5D. Counterparts. This Agreement may be executed in separate
counterparts, none of which need contain the signature of more than one party
hereto but each of which shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
5E. Successors and Assigns. Except as otherwise provided herein,
this Agreement shall bind the parties hereto and their respective successors and
assigns and shall inure to the benefit of and be enforceable by the parties
hereto and their respective successors and assigns. Notwithstanding the
foregoing, the Executive Investors shall not transfer any Unvested Class C
Common to any person, except (i) pursuant to the pledge and forfeiture
provisions of this Agreement, or (ii) to the executor of such Executive
Investor's estate, at which time such executor shall sign a counterpart to this
Agreement agreeing to stand in the place of the Executive Investor and be bound
by the provisions hereof with respect to such shares of Unvested Class C Common.
5F. Choice of Law. The corporate law of the State of Delaware shall
govern all questions concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement and the
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<PAGE>
exhibits hereto shall be governed by the internal law, and not the law of
conflicts, of the State of Illinois.
5G. Amendment and Waiver. The provisions of this Agreement may be
amended and waived only with the prior written consent of the Company, the New
Capital Investor and the holders of a majority of the shares of Unvested Class C
Common then outstanding, and such an amendment or waiver shall be binding on all
parties; provided that any holder of Unvested Class C Common may waive the
rights under this Agreement to have the shares of Unvested Class C Common held
by such holder vest (upon such waiver, such shares the rights to vest of which
are waived shall be treated for purposes of this Agreement (including paragraph
2A(c) and Section 3) as if they had been repurchased pursuant to the repurchase
provisions of an Executive Stock Agreement.
5H. Notice. Any notice provided for in this Agreement shall be in
writing and shall be deemed to have been given when personally delivered to the
recipient, three business days after being mailed to the recipient by first
class mail (postage prepaid and return receipt requested), or one business day
after being sent to the recipient by reputable overnight courier service
(charges prepaid). Such notices shall be sent to each recipient at the address
specified for such recipient in the Stock Purchase Agreement, or to such other
address or to the attention of such other person as the recipient party shall
have specified by prior written notice to the sending party. Any notice given by
a holder of Unvested Class C Common pursuant to paragraph 1B hereof shall, in
addition to the other requirements for such notice set forth in paragraph 1B,
state in a conspicuous manner that, subject to the conditions and determinations
contemplated thereby, the events described therein are scheduled to occur on the
20th day following the end of the Rule 144 Quarter (and the notice shall
conspicuously specify the actual date that is such 20th day).
5I. Remedies. Each of the parties to this Agreement shall be
entitled to enforce its rights under this Agreement specifically, to recover
damages and costs (including reasonable attorney's fees) caused by any breach of
any provision of this Agreement and to exercise all other rights existing in its
favor. The parties hereto agree and acknowledge that money damages would not be
an adequate remedy for any breach of the provisions of this Agreement and that
any party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or deposit) for specific
performance and/or other injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement.
5J. Termination. The provisions of this Agreement shall terminate
upon the earlier of (i) the first date upon which there remains either no
Unvested Class C Common outstanding, and (ii) the seventh anniversary of the
date hereof; provided that the obligations under this Agreement with respect to
any events resulting in the termination hereof shall survive such termination.
* * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
FRONTENAC VI, L.P.
By Frontenac Company, its General Partner
By:
-------------------------------------
Its:
------------------------------------
-----------------------------------------
Brian F. Addy
-----------------------------------------
John R. Barnicle
-----------------------------------------
Joseph Beatty
-----------------------------------------
Robert C. Taylor, Jr.
FOCAL COMMUNICATIONS CORPORATION
By:
-----------------------------------
Its:
-----------------------------------
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EXHIBIT 4.3
VESTING AGREEMENT
-----------------
THIS VESTING AGREEMENT (this "Agreement") is made as of November 27,
1996, by and among Battery Ventures III, L.P. (the "New Capital Investor"),
Focal Communications Corporation (the "Company"), and each of Robert C. Taylor,
Jr., John R. Barnicle, Brian F. Addy and Joseph Beatty (individually an
"Executive Investor" and collectively the "Executive Investors").
The execution and delivery of this Agreement is a condition to the
purchase of the Company's Class A Common Stock, par value $.01 per share (the
"Class A Common"), by the New Capital Investor, the Executive Investors and
certain other investors (collectively, the "Investors"), pursuant to a Stock
Purchase Agreement of even date herewith by and among the Company and such
Investors (the "Stock Purchase Agreement"). Capitalized terms used but not
otherwise defined herein are used herein with the meanings ascribed to such
terms in Sections 2 and 3 below.
NOW, THEREFORE, in consideration of the mutual premises made herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
Section 1. Vesting and Forfeiture.
1A. Vesting and Forfeiture upon a Sale. Contemporaneously with any
sale or transfer by the New Capital Investor to any person of any shares of
Qualified Common (including by way of merger or consolidation, but excluding (i)
any sale or transfer of shares to a Successor Fund upon such Successor Fund's
execution of a counterpart to this Agreement agreeing to be bound by the
provisions hereof and to succeed to the rights and obligations of New Capital
Investor hereunder with respect to the shares of Qualified Common sold or
transferred to such Successor Fund, and (ii) any recapitalization or other
reorganization in which the New Capital Investor's holdings of the Company's
equity immediately after such transaction are equal to the New Capital
Investor's holdings of the Company's equity immediately prior to such
transaction) (a "Sale"):
(a) a number (if any) of the shares of Unvested Class C Common
held by each holder of Unvested Class C Common shall vest equal to the
product obtained by multiplying (x) the number of shares of Qualified
Common being transferred in such Sale, times (y) such holder's Applicable
Percentage for such Sale;
(b) a number (if any) of the New Capital Investor's shares of
Nonqualified Common equal to the product obtained by multiplying (i) the
number of shares of Qualified Common being transferred in such Sale, times
(ii) the sum of the Applicable Percentages for all holders of Unvested
Class C Common for such Sale, shall without further action by the Company
or the New Capital Investor automatically be deemed forfeited, and the New
Capital Investor shall thereafter no longer exercise nor have the right to
exercise any of its rights with respect to such forfeited shares; and
<PAGE>
(c) a number of the shares of Unvested Class C Common held by
each holder of Unvested Class C Common equal to the difference (if any)
obtained by subtracting (i) the number of such holder's shares of Unvested
Class C Common that are to vest as a result of such Sale, from (ii) the
number of such holder's shares of Unvested Class C Common that would vest
as a result of such Sale if the Return Multiple for such Sale were 35,
shall without further action by the Company or such holder automatically be
deemed forfeited, and such holder shall thereafter no longer exercise nor
have the right to exercise any of its rights with respect to such forfeited
shares.
1B. Vesting and Forfeiture upon Election Notice following a Rule 144
Quarter. If, within 10 business days after any calendar quarter (following the
consummation of the Company's initial Public Offering) during which any shares
of Qualified Common then held by the New Capital Investor (excluding (i) shares
sold or transferred pursuant to a Sale during such calendar quarter, and (ii)
shares the transfer of which during such calendar quarter would have been
restricted under any hold-back agreement entered into with, or for the benefit
of, the Company or its underwriters) are eligible to be transferred pursuant to
Rule 144 promulgated by the Securities Exchange Commission under the Securities
Act of 1933, as amended, or any successor rule or rules then in effect ("Rule
144") as of the last business day of such calendar quarter (such a calendar
quarter, a "Rule 144 Quarter") (such eligible shares, the "Rule 144 Eligible
Shares"), any holder of Unvested Class C Common gives written notice to the New
Capital Investor setting forth the number of Rule 144 Eligible Shares for such
Rule 144 Quarter, such holder's estimated calculation of the Fair Market Value
of such Rule 144 Eligible Shares (including all market information necessary to
enable the New Capital Investor to perform such calculation), and such holder's
estimated calculation of the number of such holder's shares of Unvested Class C
Common that will vest pursuant to paragraph 1B(a) with respect to such Rule 144
Quarter ("Election Notice"), then on the 20th business day following such Rule
144 Quarter:
(a) a number (if any) of the shares of Unvested Class C Common
held by each such electing holder shall vest equal to the product obtained
by multiplying (x) the number of Rule 144 Eligible Shares for such Rule 144
Quarter, times (y) such holder's Applicable Percentage for such Rule 144
Quarter;
(b) a number (if any) of the New Capital Investor's shares of
Nonqualified Common equal to the product obtained by multiplying (x) the
number of Rule 144 Eligible Shares for such Rule 144 Quarter, times (y) the
sum of the Applicable Percentages for such Rule 144 Quarter for all holders
of Unvested Class C Common giving Election Notice with respect to such Rule
144 Quarter, shall without further action by the Company or the New Capital
Investor automatically be deemed forfeited, and the New Capital Investor
shall thereafter no longer exercise nor have the right to exercise any of
its rights with respect to such forfeited shares;
(c) a number of the shares of Unvested Class C Common held by
each holder of Unvested Class C Common giving Election Notice with respect
to such Rule 144 Quarter equal to the difference (if any) obtained by
subtracting (i) the number of such
<PAGE>
holder's shares of Unvested Class C Common that are to vest as a result of
giving such Election Notice, from (ii) the number of such holder's shares
of Unvested Class C Common that would vest as a result of giving such
Election Notice if the Return Multiple for such Rule 144 Quarter were 35,
shall without further action by the Company or such holder automatically be
deemed forfeited, and such holder shall thereafter no longer exercise nor
have the right to exercise any of its rights with respect to such forfeited
shares.
1C. Vesting and Forfeiture upon Liquidation. Contemporaneously with
a complete liquidation of the Company (the "Liquidation"):
(a) a number (if any) of the shares of Unvested Class C Common
held by each holder of Unvested Class C Common shall vest equal to the
product obtained by multiplying (x) the number of shares of Qualified
Common held by New Capital Investor as of the date of the Liquidation,
times (y) such holder's Applicable Percentage for such Liquidation;
(b) a number (if any) of the New Capital Investor's shares of
Nonqualified Common equal to the product obtained by multiplying (i) the
number of shares of Qualified Common held by the New Capital Investor as of
the date of the Liquidation, times (ii) the sum of the Applicable
Percentages for all holders of Unvested Class C Common for such
Liquidation, shall without further action by the Company or the New Capital
Investor automatically be deemed forfeited, and the New Capital Investor
shall thereafter no longer exercise nor have the right to exercise any of
its rights with respect to such forfeited shares.
(c) a number of the shares of Unvested Class C Common held by
each holder of Unvested Class C Common equal to the difference (if any)
obtained by subtracting (i) the number of such holder's shares of Unvested
Class C Common that are to vest as a result of such Liquidation, from (ii)
the number of such holder's shares of Unvested Class C Common that would
vest as a result of such Liquidation if the Return Multiple for such
Liquidation were 35, shall without further action by the Company or such
holder automatically be deemed forfeited, and such holder shall thereafter
no longer exercise nor have the right to exercise any of its rights with
respect to such forfeited shares.
1D. Forfeiture upon Termination of this Agreement. Upon the seventh
anniversary of the date hereof, all Unvested Class C Common then outstanding
shall without further action by the Company or any holder of such Unvested Class
C Common automatically be deemed forfeited, and each such holder shall
thereafter no longer exercise nor have the right to exercise any of its rights
with respect to such forfeited shares.
1E. Forfeiture Procedure. Upon any forfeiture of any shares of
Unvested Class C Common or Nonqualified Common pursuant to this Agreement, the
holder of such forfeited shares shall promptly submit the certificate or
certificates representing such forfeited shares to the Company for cancellation.
Upon such submission, the Company shall take all actions necessary to retire
such forfeited shares and to cause such shares to resume the status of
authorized and unissued shares. The Company shall promptly cancel the submitted
certificate(s) and issue to such holder (i) a certificate, bearing the legend
set forth in paragraph 5B below, representing the number of shares (if any) of
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<PAGE>
Unvested Class C Common or Nonqualified Common, as applicable, which were
evidenced by the submitted certificate(s) but which were not forfeited, and (ii)
a certificate, not bearing the legend set forth in paragraph 4B below,
representing the number of shares represented by the submitted certificate(s)
that were not forfeited and that in connection with such forfeiture ceased to be
Nonqualified Common or became Vested Class C Common, as applicable.
Section 2. Calculation of Each Holder's Applicable Percentage.
2A. Applicable Percentage. For each Sale, Liquidation, or Rule 144
Quarter, the "Applicable Percentage" for each holder of Unvested Class C Common
shall be equal to the percentage obtained by multiplying:
(a) 25% (or if such holder is no longer employed by the Company
or any of its Subsidiaries ("Termination"), the product of (i) 25%, times
(ii) a fraction, the numerator of which is the number of shares of Unvested
Class C Common held by such holder immediately prior to Termination that
were not elected to be repurchased pursuant to an Executive Stock Agreement
as a result of such Termination, and the denominator of which is the number
of shares of Unvested Class C Common held by such holder immediately prior
to such Termination); times
(b) the quotient obtained by dividing (x) the Return Multiple for
such Sale, Liquidation, or Rule 144 Quarter minus 20 (provided that such
difference shall not be less than zero nor greater than 15), by (y) 65.
2B. Calculation of the Return Multiple.
(a) The "Return Multiple" for each Sale shall be equal to the quotient
obtained by dividing:
(i) the Fair Market Value of all consideration that the New
Capital Investor will receive in such Sale in exchange for the shares of
Qualified Common to be transferred or sold by the New Capital Investor in
such Sale, by
(ii) the Total Cost and Contributions for the shares of Qualified
Common to be transferred or sold by the New Capital Investor in such Sale
(as well as any shares of Nonqualified Common that will be forfeited
pursuant to this Agreement in connection with such Sale).
(b) The "Return Multiple" for each Liquidation shall be equal to the
quotient obtained by dividing:
(i) the Fair Market Value of all consideration to be distributed
in such Liquidation to the New Capital Investor with respect to the shares
of Qualified Common held by the New Capital Investor as of the date of such
Liquidation, by
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<PAGE>
(ii) the Total Cost and Contributions for the shares of
Qualified Common held by the New Capital Investor as of the date of such
Liquidation (as well as any shares of Nonqualified Common that will be
forfeited pursuant to this Agreement in connection with such Liquidation).
(c) The "Return Multiple" for each Rule 144 Quarter shall be equal to
the quotient obtained by dividing:
(i) the Fair Market Value of all of the New Capital Investor's
Rule 144 Eligible Shares for such Rule 144 Quarter, by
(ii) the Total Cost and Contributions for the New Capital
Investor's Rule 144 Eligible Shares for such Rule 144 Quarter (as well as
any shares of Nonqualified Common to be forfeited pursuant to this
Agreement by virtue of all Election Notices filed with respect to such Rule
144 Quarter).
Section 3. Definitions.
"Executive Stock Agreements" means the executive stock agreements of
even date herewith, each by and between the Company and one Executive Investor,
as amended from time to time pursuant to their terms.
"Fair Market Value" shall mean:
(i) with respect to any Rule 144 Eligible Share, the weighted
average (based on the volume of trading in shares of the class of the
Company's common stock that includes the Rule 144 Eligible Shares (the
Company's "Common Stock") on each business day during the Rule 144 Quarter)
over all of the business days during such Rule 144 Quarter, of the average
of the closing prices of the sales of such Common Stock on all securities
exchanges on which such Common Stock may at that time be listed, or, if
there have been no sales on any such exchange on any day, the average of
the highest bid and lowest asked prices on all such exchanges at the end of
such day, or, if on any day the Common Stock is not so listed, the average
of the representative bid and asked prices quoted in the NASDAQ System as
of 4:00 P.M., New York time, or, if on any day the Common Stock is not
quoted in the NASDAQ System, the average of the highest bid and lowest
asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau Incorporated, or any similar
successor organization; and
(ii) with respect to consideration received in a Sale or
Liquidation, the amount of all cash consideration received plus the fair
market value of all other consideration received (as shall be determined in
good faith by the New Capital Investor).
"Nonqualified Common" means 2,019.23 of the shares of Class A Common
purchased by the New Capital Investor under the Stock Purchase Agreement
(together with any shares issued with respect to such shares of Nonqualified
Common, including any stock splits, stock dividends, or recapitalizations);
provided that
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<PAGE>
(i) contemporaneously with a Sale, the number of shares of
Nonqualified Common that would be forfeited in connection with such Sale if
the Return Multiple for such Sale were 35 shall (whether or not actually
forfeited in connection with such Sale) forever cease to be Nonqualified
Common,
(ii) if any holder or holders of Unvested Class C Common give(s)
Election Notice with respect to a Rule 144 Quarter, the number of shares of
Nonqualified Common that would be forfeited in connection with such Rule
144 Quarter if the Return Multiple for such Rule 144 Quarter were 35 shall
(whether or not actually forfeited in connection with such Rule 144
Quarter) forever cease to be Nonqualified Common, and
(iii) contemporaneously with a Liquidation or termination of
this Agreement, any and all shares of Nonqualified Common then held by the
New Capital Investor shall forever cease to be Nonqualified Common,
(iv) if any shares of an Executive Investor's Unvested Class C
Common are repurchased pursuant to the provisions of an Executive Stock
Agreement, or if any Executive Investor waives (pursuant to paragraph 5G
below) his right to have any of his shares of Unvested Class C Common vest,
a number of New Capital Investor's shares of Nonqualified Common shall vest
equal to the number of shares of Unvested Class C Common so repurchased or
of which the rights to vest are so waived.
"Public Offering" means the initial underwritten sale of the company's
common stock pursuant to an effective registration statement under the
Securities Act filed with the Securities and Exchange Commission on Form S-1 (or
a successor form adopted by the Securities and Exchange Commission); provided
that the following shall not be considered a Public Offering: (i) any issuance
of common stock as consideration or financing for a merger or acquisition, and
(ii) any issuance of common stock or rights to acquire common stock to employees
of the Company or its Subsidiaries as part of an incentive or compensation plan.
"Qualified Common" means 8,750 of the shares of Class A Common
purchased by the New Capital Investor under the Stock Purchase Agreement
(together with any shares issued with respect to such shares of Qualified
Common, including by any stock splits, stock dividends, or recapitalizations),
provided that any such share shall forever cease to be Qualified Common (i) upon
a Liquidation, (ii) when such share has been sold or transferred in a Sale, or
(iii) upon termination of this Agreement; and provided further that if any
holder of Unvested Class C Common gives Election Notice with respect to a Rule
144 Quarter, all Rule 144 Eligible Shares for such Rule 144 Quarter shall, for
all purposes as to such electing holder, thereafter forever cease to be
Qualified Common.
"Successor Fund" means, with respect to the New Capital Investor, any
private equity fund formed for the principal purpose of making equity
investments, where such fund is managed by the same principal parties having
management responsibility for the New Capital Investor.
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<PAGE>
"Total Cost and Contributions" means, with respect to each share of
Qualified Common or Nonqualified Common held by the New Capital Investor on any
specified date, the sum of (i) the New Capital Investor's Initial Contribution
(as that term is defined in the Stock Purchase Agreement) divided by the
aggregate number of shares of Class A Common purchased by the New Capital
Investor under the Stock Purchase Agreement (as adjusted for stock splits, stock
dividends, recapitalizations, and other reorganizations, the "Original Class A
Common"), and (ii) for all Subsequent Contributions (as that term is defined in
the Stock Purchase Agreement) made by the New Capital Investor from the date
hereof through such specified date, the quotient obtained by dividing (x) the
amount of each such Subsequent Contribution by the aggregate number of shares of
Original Class A Common held by the New Capital Investor as of the date of each
such Subsequent Contribution.
"Unvested Class C Common" means, as to each Executive Investor,
504.8075 of the shares of Class C Common issued as of the date hereof (together
with shares issued with respect to such shares of Unvested Class C Common as
part of any stock split, stock dividend, or recapitalization); provided that any
such share shall forever cease to be Unvested Class C Common when it has been
(i) repurchased by the Company, an Investor, or an executive employee of the
Company or its Subsidiaries pursuant to paragraph 3 of an Executive Stock
Agreement, (ii) forfeited pursuant to the terms of this Agreement, or (iii)
vested pursuant to the terms of this Agreement (at which time, such share shall
become Vested Class C Common).
"Vested Class C Common" means all shares of Unvested Class C Common
that have vested pursuant to the terms of this Agreement (and thereby ceased to
be Unvested Class C Common).
Section 4. Pledge of Unvested Class C Common.
4A. Pledge. Each Executive Investor hereby initially pledges to the
New Capital Investor, and grants to the New Capital Investor a security interest
in such Executive Investor's Unvested Class C Common (such Executive Investor's
"Pledged Shares") as security for its duties and obligations pursuant to this
Agreement.
4B. Delivery of Pledged Shares. Upon the execution of this
Agreement, each Executive Investor shall deliver to the New Capital Investor the
certificate(s) representing such Executive Investor's Pledged Shares, together
with duly executed forms of assignment sufficient to transfer title thereto to
the New Capital Investor.
4C. Status as Holder. For purposes of determinations and
calculations under this Agreement, each Executive Investor shall be deemed to be
the holder of such Executive Investor's Pledged Shares.
4D. Distributions, Other Certificates, etc. If any Executive
Investor becomes entitled to receive or receives any securities or other
property with respect to, in substitution of, or in exchange for any of such
Executive Investor's Pledged Shares (whether as a distribution in connection
with any recapitalization, reorganization or reclassification, a stock dividend
or otherwise), or any certificate(s) representing any of such Executive
Investor's Pledged Shares, such
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<PAGE>
Executive Investor shall accept such securities, property, or certificate(s) on
behalf of and for the benefit of the New Capital Investor as additional security
for such Executive Investor's obligations hereunder and shall promptly deliver
such additional security to the New Capital Investor together with duly executed
forms of assignment, and such additional security shall be deemed to be part of
such Executive Investor's Pledged Shares.
4E. Delivery to and by the New Capital Investor. If the Company
issues any certificate representing Pledged Shares, the Company shall in keeping
with the purpose of paragraph 4D deliver such certificate directly to the New
Capital Investor. If the holder of such Pledged Shares is required pursuant to
the terms of this Agreement to transfer any certificate representing Pledged
Shares to the Company for cancellation, the New Capital Investor shall transfer
such certificate to the Company on behalf of such holder.
4F. Release of Pledged Shares upon Vesting. Upon any of Executive
Investor's Pledged Shares becoming Vested Class C Common pursuant to this
Agreement, the New Capital Investor shall deliver to such Executive Investor the
certificate or certificates representing such shares of Vested Class C Common
(or, if necessary, the New Capital Investor shall submit the certificate or
certificates representing such Vested Class C Common to the Company, and the
Company shall issue to such Executive Investor a certificate representing the
number of shares of Vested Class C Common represented by such submitted
certificate(s), and shall deliver to the New Capital Investor a certificate
(issued in such Executive Investor's name) representing the number of shares of
Class C Common which were represented by such submitted certificate(s) but which
were not Vested Class C Common and not forfeited), and such Vested Class C
Common shall no longer constitute part of such Executive Investor's Pledged
Shares.
4G. Voting Proxy. Each Executive Investor hereby appoints the New
Capital Investor as his true and lawful proxy and attorney-in fact, with full
power of substitution, to vote all of such Executive Investor's Pledged Shares
on all matters to be voted on by the Company's shareholders. These proxies and
powers granted by each Executive Investor pursuant to this paragraph 4G are
coupled with an interest, and are given to secure each Executive Investor's
obligations to the New Capital Investor under this Agreement. Such proxies and
powers shall be irrevocable with respect to each such Pledged Share (and shall
survive the death, disability, incompetency, or bankruptcy of such Executive
Investor) until such time as such Pledged Share becomes Vested Class C Common
pursuant to the provisions of this Agreement and thereby ceases to be a Pledged
Share, at which time such proxy shall be deemed revoked with respect to such
share (but not with respect to any shares of such holder that remain Pledged
Shares).
4H. Further Assurances. Each Executive Investor agrees that at any
time and from time to time upon the request of the New Capital Investor, such
Executive Investor shall execute and deliver such further documents and take
such further actions as the New Capital Investor may reasonably request in order
to effect the purpose of this Agreement.
Section 5. Miscellaneous.
5A. New Capital Investor Determinations. All calculations and other
determinations under provisions of this Agreement (including the final
determination of the Fair
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<PAGE>
Market Value of Rule 144 Eligible Shares) shall be performed and made in good
faith by the New Capital Investor, and such good faith determinations shall be
binding on all parties hereto. The Company and the Executive Investors shall
deliver to the New Capital Investor such information as the New Capital Investor
may reasonably request in connection with performing such calculations or making
such determinations.
5B. Restrictive Legend. Each certificate evidencing shares of
Nonqualified Common and Unvested Class C Common shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
FORFEITURE PROVISIONS SET FORTH IN A VESTING AGREEMENT DATED AS OF
NOVEMBER 27, 1996, BY AND AMONG THE ISSUER OF SUCH SECURITIES, AND
CERTAIN PERSONS LISTED ON THE SIGNATURE PAGES ATTACHED THERETO, AS
AMENDED FROM TIME TO TIME PURSUANT TO ITS TERMS. A COPY OF SUCH
VESTING AGREEMENT SHALL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO
THE HOLDER HEREOF UPON WRITTEN REQUEST."
The legend set forth above shall be removed from the certificates evidencing any
of the above shares when such shares cease to be Nonqualified Common or Unvested
Class C Common, as applicable.
5C. Complete Agreement. This Agreement, those documents expressly
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
5D. Counterparts. This Agreement may be executed in separate
counterparts, none of which need contain the signature of more than one party
hereto but each of which shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
5E. Successors and Assigns. Except as otherwise provided herein,
this Agreement shall bind the parties hereto and their respective successors and
assigns and shall inure to the benefit of and be enforceable by the parties
hereto and their respective successors and assigns. Notwithstanding the
foregoing, the Executive Investors shall not transfer any Unvested Class C
Common to any person, except (i) pursuant to the pledge and forfeiture
provisions of this Agreement, or (ii) to the executor of such Executive
Investor's estate, at which time such executor shall sign a counterpart to this
Agreement agreeing to stand in the place of the Executive Investor and be bound
by the provisions hereof with respect to such shares of Unvested Class C Common.
5F. Choice of Law. The corporate law of the State of Delaware shall
govern all questions concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement and the
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<PAGE>
exhibits hereto shall be governed by the internal law, and not the law of
conflicts, of the State of Illinois.
5G. Amendment and Waiver. The provisions of this Agreement may be
amended and waived only with the prior written consent of the Company, the New
Capital Investor and the holders of a majority of the shares of Unvested Class C
Common then outstanding, and such an amendment or waiver shall be binding on all
parties; provided that any holder of Unvested Class C Common may waive the
rights under this Agreement to have the shares of Unvested Class C Common held
by such holder vest (upon such waiver, such shares the rights to vest of which
are waived shall be treated for purposes of this Agreement (including paragraph
2A(c) and Section 3) as if they had been repurchased pursuant to the repurchase
provisions of an Executive Stock Agreement.
5H. Notice. Any notice provided for in this Agreement shall be in
writing and shall be deemed to have been given when personally delivered to the
recipient, three business days after being mailed to the recipient by first
class mail (postage prepaid and return receipt requested), or one business day
after being sent to the recipient by reputable overnight courier service
(charges prepaid). Such notices shall be sent to each recipient at the address
specified for such recipient in the Stock Purchase Agreement, or to such other
address or to the attention of such other person as the recipient party shall
have specified by prior written notice to the sending party. Any notice given by
a holder of Unvested Class C Common pursuant to paragraph 1B hereof shall, in
addition to the other requirements for such notice set forth in paragraph 1B,
state in a conspicuous manner that, subject to the conditions and determinations
contemplated thereby, the events described therein are scheduled to occur on the
20th day following the end of the Rule 144 Quarter (and the notice shall
conspicuously specify the actual date that is such 20th day).
5I. Remedies. Each of the parties to this Agreement shall be
entitled to enforce its rights under this Agreement specifically, to recover
damages and costs (including reasonable attorney's fees) caused by any breach of
any provision of this Agreement and to exercise all other rights existing in its
favor. The parties hereto agree and acknowledge that money damages would not be
an adequate remedy for any breach of the provisions of this Agreement and that
any party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or deposit) for specific
performance and/or other injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement
5J. Termination. The provisions of this Agreement shall terminate
upon the earlier of (i) the first date upon which there remains either no
Unvested Class C Common outstanding, and (ii) the seventh anniversary of the
date hereof; provided that the obligations under this Agreement with respect to
any events resulting in the termination hereof shall survive such termination.
* * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
BATTERY VENTURES III, L.P.
By Battery Partners, III, L.P.
By: __________________________________
Its: __________________________________
_______________________________________
Brian F. Addy
_______________________________________
John R. Barnicle
_______________________________________
Joseph Beatty
_______________________________________
Robert C. Taylor, Jr.
FOCAL COMMUNICATIONS CORPORATION
By: _________________________________
Its: _________________________________
-S1-
<PAGE>
EXHIBIT 4.4
AMENDMENT NO. 1 TO
VESTING AGREEMENT AND CONSENT
-----------------------------
This Amendment No. 1 to Vesting Agreement and Consent (this "Amendment") is
entered into as of this 21/st/ day of August, 1998, between Focal Communications
Corporation, a Delaware corporation (the "Company"), Brian F. Addy, John R.
Barnicle, Joseph Beatty, Robert C. Taylor, Jr. (collectively, the "Executive
Investors"), Madison Dearborn Capital Partners, L.P., Frontenac VI, L.P., and
Battery Ventures III, L.P. (the "New Capital Investor" and collectively, the
"Institutional Investors"). Capitalized terms not otherwise defined in this
Agreement are used herein with the meanings assigned to such terms in the New
Capital Vesting Agreement (as hereinafter defined).
WHEREAS, the Company, the Executive Investors and the New Capital Investor
are parties to that certain Vesting Agreement dated as of November 27, 1996 (the
"New Capital Vesting Agreement");
WHEREAS, each Institutional Investor other than the New Capital Investor is
a party to Vesting Agreements dated as of November 27, 1996 (the "Other Vesting
Agreements");
WHEREAS, the New Capital Vesting Agreement and the Other Vesting Agreements
(collectively, the "Vesting Agreements") provide for the (a) issuance of
14,711.54 shares of the Company's Class C Common Stock, par value $.01 per share
("Class C Common"), to the Executive Investors, which shares would be subject to
certain vesting requirements, and (b) the characterization of 14,711.54 shares
of the Company's Class A Common Stock, par value $.01 ("Class A Common"),
purchased by the Institutional Investors as "Nonqualified Common," which shares
would be subject to certain risks of forfeiture associated with the vesting of
shares of Class C Common;
WHEREAS, the Company, the Executive Investors and the Institutional
Investors have determined that it is in their respective best interests to amend
the New Capital Vesting Agreement to, among other things, clarify the terms and
conditions under which the Executive Investors' rights to the Class C Common
would become vested;
WHEREAS, the Company, the Executive Investors and the New Capital Investor
wish to amend the provisions of the New Capital Vesting Agreement as provided in
paragraph 1 of this Amendment;
WHEREAS, the Institutional Investors collectively own all of the shares of
Institutional Investor Stock (as such term is defined in that certain Stock
Purchase Agreement, dated as of November 26, 1996, by and among the Company and
the other parties thereto (the "Stock Purchase Agreement")) presently
outstanding and the Executive Investors collectively own all of the shares of
Unvested Class C Common presently outstanding and at least a majority of the
shares of
<PAGE>
Executive Stock (as such term is defined in the Stock Purchase Agreement)
presently outstanding; and
WHEREAS, the Institutional Investors and the Executive Investors wish to
consent to the amendment (as provided in paragraph 1 of this Amendment) for
purposes of the Stock Purchase Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties to this Amendment
hereby agree as follows:
1. Amendments to New Capital Vesting Agreement. Pursuant to Section 5G of
-------------------------------------------
the New Capital Vesting Agreement:
(a) Section 3 of the New Capital Vesting Agreement is hereby amended
by adding the following definition to such section:
"Qualified Sale of the Company" means a sale or transfer of all or
-----------------------------
substantially all of the outstanding stock or assets of the Company
and its subsidiaries, including by way of merger or consolidation,
where more than 50% of the consideration for such stock or assets in
such sale or transfer consists of cash and/or publicly traded
securities."
(b) Section 5J of the New Capital Vesting Agreement is hereby amended
by replacing such section in its entirety with the following:
"5J. Termination. The provisions of this Agreement shall terminate
-----------
upon the earlier of (i) the date upon which there remains no
Unvested Class C Common outstanding, (ii) the seventh anniversary
of the date hereof or (iii) the Effective Time (as hereinafter
defined); provided, however, that the obligations under this
Agreement with respect to any events resulting in the termination
hereof and the provisions of Section 6 hereof shall survive such
termination."
(c) The New Capital Vesting Agreement is hereby amended by adding the
following Section at the end of such Agreement:
2
<PAGE>
"Section 6. Obligations of the Parties Upon the Effective Time.
--------------------------------------------------
6A. Disposition of Unvested Class C Common. Upon the earlier to occur
--------------------------------------
of (i) the date immediately prior to the consummation of a Public
Offering, (ii) September 30, 1998 or (iii) the date upon which a
Qualified Sale of the Company is consummated, whichever is
earlier (such earlier date, the "Effective Time"), (i) 68.63
shares of the Unvested Class C Common held by each Executive
Investor (an aggregate of 274.51 shares of Unvested Class C
Common) shall be designated "Restricted Stock" (the "Restricted
Stock") and shall thereafter be subject to the terms and
conditions of certain Restricted Stock Agreements between the
Company and each of the Executive Investors in the form attached
hereto as Exhibit A (the "Restricted Stock Agreements") and (ii)
all remaining shares of Unvested Class C Common (an aggregate of
1,744.72 shares of Unvested Class C Common or 436.18 shares of
Unvested Class C Common per Executive Investor) (the "Forfeited
Class C Common") shall be automatically forfeited and the
applicable Executive Investor shall thereafter no longer exercise
nor have the right to exercise any of his rights with respect to
such forfeited shares.
6B. Disposition of Nonqualified Common. Upon the Effective Time, (i)
----------------------------------
686.5 shares of Nonqualified Common held by the New Capital
Investor (the "Forfeited Nonqualified Common" and together with
the Forfeited Class C Common, the "Forfeited Shares") shall be
automatically forfeited and the New Capital Investor shall
thereafter no longer exercise nor have the right to exercise any
of its rights with respect to such forfeited shares and (ii) the
1,332.73 remaining shares of Nonqualified Common held by the New
Capital Investor (the "Unrestricted Class A Common") shall no
longer be subject to any risk of forfeiture in connection with
this Agreement.
6C. Procedures. No later than five (5) business days after the
---------
execution and delivery of this Amendment by the Institutional
Investors, the holders of the Forfeited Shares shall promptly
deliver to the Company the certificate or certificates
representing such Forfeited Shares, duly endorsed (or accompanied
by stock powers duly endorsed) in blank by the registered holders
thereof to be held by the Company for transfer and cancellation
by the Company in accordance with Sections 6A and 6B. Upon the
Effective Time, the Company shall take all actions necessary to
(a) execute and deliver to the Executive Investor the Restricted
Stock Agreement, with all blanks appropriately completed, (b)
retire the Forfeited Shares and cause such shares to resume the
status of authorized but unissued shares, (c) promptly cancel the
certificate(s) representing the Forfeited Shares and (d) issue to
(i) the Executive Investors a certificate representing the number
of shares of Restricted Stock pursuant to 6A(i) and in accordance
with the Restricted Stock Agreement and (ii) the New Capital
Investor a certificate, bearing the
3
<PAGE>
appropriate legends, representing the number of shares of
Unrestricted Class A Common pursuant to Section 6B(ii)."
2. Shares Available for Issuance Under the Company's Equity Incentive
------------------------------------------------------------------
Plans. The Institutional Investors each hereby acknowledge that the agreement
- - -----
by the Company to adopt the Company's 1998 Equity and Performance Incentive Plan
(the "Equity Plan") and 1998 Equity Plan for Non-Employee Directors (the
"Director Plan") in substantially the forms attached hereto as Exhibit B and
---------
Exhibit C, respectively, and concurrently therewith to adopt certain amendments
- - ---------
to the Company's 1997 Nonqualified Stock Option Plan (the "1997 Plan Amendment")
in substantially the form attached hereto as Exhibit D, constitutes a material
---------
portion of the consideration for the execution of this Amendment by the
Executive Investors. The Institutional Investors each hereby further
acknowledge that by executing this Amendment, the Institutional Investors each
agree to do all things necessary or appropriate to cause such Plans and the 1997
Plan Amendment to be adopted in accordance with this Section 2.
3. Consent. For all purposes of the Stock Purchase Agreement (including,
-------
without limitation, Sections 4C(ii), (iii) and (xii), 4E and 4G thereof), each
of the Institutional Investors and Executive Investors consents to this
Amendment.
4. Counterparts. This Amendment may be executed in multiple
------------
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
5. Descriptive Headings. The descriptive headings of this Amendment are
--------------------
inserted for convenience only and do not constitute a part of this Amendment.
6. Survival. Notwithstanding anything in the Vesting Agreements to the
--------
contrary, the terms of this Amendment shall survive termination of the Vesting
Agreements.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
MADISON DEARBORN CAPITAL
_________________________
Brian F. Addy PARTNERS, L.P.
By: Madison Dearborn Partners, L.P., its General
Partner
By: Madison Dearborn Partners, Inc., its General
Partner
By:___________________________________________
_________________________
John R. Barnicle Its:______________________________________
FRONTENAC VI, L.P.
_________________________
Joseph Beatty By: Frontenac Company, its General Partner
By:_____________________________________________
Its:_______________________________________
BATTERY VENTURES III, L.P.
_________________________
Robert C. Taylor, Jr. By: Battery Partners III, L.P., its General
Partner
By:_____________________________________________
Its:_______________________________________
FOCAL COMMUNICATIONS CORPORATION
By:_____________________________________________
Its:_______________________________________
5
<PAGE>
EXHIBIT A
[Form of Restricted Stock Agreement]
6
<PAGE>
EXHIBIT B
[1998 Plan]
7
<PAGE>
EXHIBIT C
[Director Plan]
8
<PAGE>
EXHIBIT D
[Amendment to 1997 Plan]
9
<PAGE>
EXHIBIT 4.5
AMENDMENT NO. 1 TO
VESTING AGREEMENT AND CONSENT
-----------------------------
This Amendment No. 1 to Vesting Agreement and Consent (this "Amendment") is
entered into as of this 21st day of August, 1998, between Focal Communications
Corporation, a Delaware corporation (the "Company"), Brian F. Addy, John R.
Barnicle, Joseph Beatty, Robert C. Taylor, Jr. (collectively, the "Executive
Investors"), Madison Dearborn Capital Partners, L.P., Frontenac VI, L.P. (the
"New Capital Investor"), and Battery Ventures III, L.P. (collectively, the
"Institutional Investors"). Capitalized terms not otherwise defined in this
Agreement are used herein with the meanings assigned to such terms in the New
Capital Vesting Agreement (as hereinafter defined).
WHEREAS, the Company, the Executive Investors and the New Capital Investor
are parties to that certain Vesting Agreement dated as of November 27, 1996 (the
"New Capital Vesting Agreement");
WHEREAS, each Institutional Investor other than the New Capital Investor is
a party to Vesting Agreements dated as of November 27, 1996 (the "Other Vesting
Agreements");
WHEREAS, the New Capital Vesting Agreement and the Other Vesting Agreements
(collectively, the "Vesting Agreements") provide for the (a) issuance of
14,711.54 shares of the Company's Class C Common Stock, par value $.01 per share
("Class C Common"), to the Executive Investors, which shares would be subject to
certain vesting requirements, and (b) the characterization of 14,711.54 shares
of the Company's Class A Common Stock, par value $.01 ("Class A Common"),
purchased by the Institutional Investors as "Nonqualified Common," which shares
would be subject to certain risks of forfeiture associated with the vesting of
shares of Class C Common;
WHEREAS, the Company, the Executive Investors and the Institutional
Investors have determined that it is in their respective best interests to amend
the New Capital Vesting Agreement to, among other things, clarify the terms and
conditions under which the Executive Investors' rights to the Class C Common
would become vested;
WHEREAS, the Company, the Executive Investors and the New Capital Investor
wish to amend the provisions of the New Capital Vesting Agreement as provided in
paragraph 1 of this Amendment;
WHEREAS, the Institutional Investors collectively own all of the shares of
Institutional Investor Stock (as such term is defined in that certain Stock
Purchase Agreement, dated as of November 26, 1996, by and among the Company and
the other parties thereto (the "Stock Purchase Agreement")) presently
outstanding and the Executive Investors collectively own all of the shares of
Unvested Class C Common presently outstanding and at least a majority of the
shares of
<PAGE>
Executive Stock (as such term is defined in the Stock Purchase Agreement)
presently outstanding; and
WHEREAS, the Institutional Investors and the Executive Investors wish to
consent to the amendment (as provided in paragraph 1 of this Amendment) for
purposes of the Stock Purchase Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties to this Amendment
hereby agree as follows:
1. Amendments to New Capital Vesting Agreement. Pursuant to Section 5G of
-------------------------------------------
the New Capital Vesting Agreement:
(a) Section 3 of the New Capital Vesting Agreement is hereby amended
by adding the following definition to such section:
"Qualified Sale of the Company" means a sale or transfer of all or
-----------------------------
substantially all of the outstanding stock or assets of the Company
and its subsidiaries, including by way of merger or consolidation,
where more than 50% of the consideration for such stock or assets in
such sale or transfer consists of cash and/or publicly traded
securities."
(b) Section 5J of the New Capital Vesting Agreement is hereby amended
by replacing such section in its entirety with the following:
"5J. Termination. The provisions of this Agreement shall terminate
-----------
upon the earlier of (i) the date upon which there remains no
Unvested Class C Common outstanding, (ii) the seventh anniversary
of the date hereof or (iii) the Effective Time (as hereinafter
defined); provided, however, that the obligations under this
-------- -------
Agreement with respect to any events resulting in the termination
hereof and the provisions of Section 6 hereof shall survive such
termination."
(c) The New Capital Vesting Agreement is hereby amended by adding the
following Section at the end of such Agreement:
2
<PAGE>
"Section 6. Obligations of the Parties Upon the Effective Time.
--------------------------------------------------
6A. Disposition of Unvested Class C Common. Upon the earlier to occur
--------------------------------------
of (i) the date immediately prior to the consummation of a Public
Offering, (ii) September 30, 1998 or (iii) the date upon which a
Qualified Sale of the Company is consummated, whichever is
earlier (such earlier date, the "Effective Time"), (i) 137.25
shares of the Unvested Class C Common held by each Executive
Investor (an aggregate of 549.02 shares of Unvested Class C
Common) shall be designated "Restricted Stock" (the "Restricted
Stock") and shall thereafter be subject to the terms and
conditions of certain Restricted Stock Agreements between the
Company and each of the Executive Investors in the form attached
hereto as Exhibit A (the "Restricted Stock Agreements") and (ii)
all remaining shares of Unvested Class C Common (an aggregate of
3,489.44 shares of Unvested Class C Common or 872.360 shares of
Unvested Class C Common per Executive Investor) (the "Forfeited
Class C Common") shall be automatically forfeited and the
applicable Executive Investor shall thereafter no longer exercise
nor have the right to exercise any of his rights with respect to
such forfeited shares.
6B. Disposition of Nonqualified Common. Upon the Effective Time, (i)
----------------------------------
1372.5 shares of Nonqualified Common held by the New Capital
Investor (the "Forfeited Nonqualified Common" and together with
the Forfeited Class C Common, the "Forfeited Shares") shall be
automatically forfeited and the New Capital Investor shall
thereafter no longer exercise nor have the right to exercise any
of its rights with respect to such forfeited shares and (ii) the
2,665.96 remaining shares of Nonqualified Common held by the New
Capital Investor (the "Unrestricted Class A Common") shall no
longer be subject to any risk of forfeiture in connection with
this Agreement.
6C. Procedures. No later than five (5) business days after the
----------
execution and delivery of this Amendment by the Institutional
Investors, the holders of the Forfeited Shares shall promptly
deliver to the Company the certificate or certificates
representing such Forfeited Shares, duly endorsed (or accompanied
by stock powers duly endorsed) in blank by the registered holders
thereof to be held by the Company for transfer and cancellation
by the Company in accordance with Sections 6A and 6B. Upon the
Effective Time, the Company shall take all actions necessary to
(a) execute and deliver to the Executive Investor the Restricted
Stock Agreement, with all blanks appropriately completed, (b)
retire the Forfeited Shares and cause such shares to resume the
status of authorized but unissued shares, (c) promptly cancel the
certificate(s) representing the Forfeited Shares and (d) issue to
(i) the Executive Investors a certificate representing the number
of shares of Restricted Stock pursuant to 6A(i) and in accordance
with the Restricted Stock Agreement and (ii) the New Capital
Investor a certificate, bearing the
3
<PAGE>
appropriate legends, representing the number of shares of
Unrestricted Class A Common pursuant to Section 6B(ii)."
2. Shares Available for Issuance Under the Company's Equity Incentive
------------------------------------------------------------------
Plans. The Institutional Investors each hereby acknowledge that the agreement
- - -----
by the Company to adopt the Company's 1998 Equity and Performance Incentive Plan
(the "Equity Plan") and 1998 Equity Plan for Non-Employee Directors (the
"Director Plan") in substantially the forms attached hereto as Exhibit B and
---------
Exhibit C, respectively, and concurrently therewith to adopt certain amendments
- - ---------
to the Company's 1997 Nonqualified Stock Option Plan (the "1997 Plan Amendment")
in substantially the form attached hereto as Exhibit D, constitutes a material
---------
portion of the consideration for the execution of this Amendment by the
Executive Investors. The Institutional Investors each hereby further
acknowledge that by executing this Amendment, the Institutional Investors each
agree to do all things necessary or appropriate to cause such Plans and the 1997
Plan Amendment to be adopted in accordance with this Section 2.
3. Consent. For all purposes of the Stock Purchase Agreement (including,
-------
without limitation, Sections 4C(ii), (iii) and (xii), 4E and 4G thereof), each
of the Institutional Investors and Executive Investors consents to this
Amendment.
4. Counterparts. This Amendment may be executed in multiple
------------
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
5. Descriptive Headings. The descriptive headings of this Amendment are
--------------------
inserted for convenience only and do not constitute a part of this Amendment.
6. Survival. Notwithstanding anything in the Vesting Agreements to the
--------
contrary, the terms of this Amendment shall survive termination of the Vesting
Agreements.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
___________________________ MADISON DEARBORN CAPITAL PARTNERS, L.P.
Brian F. Addy By: Madison Dearborn Partners, L.P., its General
Partner
By: Madison Dearborn Partners, Inc., its General
Partner
___________________________ By:_______________________________________________
John R. Barnicle Its:___________________________________________
___________________________ FRONTENAC VI, L.P.
Joseph Beatty By: Frontenac Company, its General Partner
By:_______________________________________________
Its:___________________________________________
___________________________ BATTERY VENTURES, III, L.P.
Robert C. Taylor, Jr. By: Battery Partners III, L.P., its General
Partner
By:_______________________________________________
Its:___________________________________________
FOCAL COMMUNICATIONS CORPORATION
By:_______________________________________________
Its:___________________________________________
5
<PAGE>
EXHIBIT A
[Form of Restricted Stock Agreement]
6
<PAGE>
EXHIBIT B
[1998 Plan]
7
<PAGE>
EXHIBIT C
[Director Plan]
8
<PAGE>
EXHIBIT D
[Amendment to 1997 Plan]
9
<PAGE>
EXHIBIT 4.6
AMENDMENT NO. 1 TO
VESTING AGREEMENT AND CONSENT
-----------------------------
This Amendment No. 1 to Vesting Agreement and Consent (this "Amendment") is
entered into as of this 21/st/ day of August, 1998, between Focal Communications
Corporation, a Delaware corporation (the "Company"), Brian F. Addy, John R.
Barnicle, Joseph Beatty, Robert C. Taylor, Jr. (collectively, the "Executive
Investors"), Madison Dearborn Capital Partners , L.P. (the "New Capital
Investor"), Frontenac VI, L.P., and Battery Ventures III, L.P. (collectively,
the "Institutional Investors"). Capitalized terms not otherwise defined in this
Agreement are used herein with the meanings assigned to such terms in the New
Capital Vesting Agreement (as hereinafter defined).
WHEREAS, the Company, the Executive Investors and the New Capital Investor
are parties to that certain Vesting Agreement dated as of November 27, 1996 (the
"New Capital Vesting Agreement");
WHEREAS, each Institutional Investor other than the New Capital Investor is
a party to Vesting Agreements dated as of November 27, 1996 (the "Other Vesting
Agreements");
WHEREAS, the New Capital Vesting Agreement and the Other Vesting Agreements
(collectively, the "Vesting Agreements") provide for the (a) issuance of
14,711.54 shares of the Company's Class C Common Stock, par value $.01 per share
("Class C Common"), to the Executive Investors, which shares would be subject to
certain vesting requirements, and (b) the characterization of 14,711.54 shares
of the Company's Class A Common Stock, par value $.01 ("Class A Common"),
purchased by the Institutional Investors as "Nonqualified Common," which shares
would be subject to certain risks of forfeiture associated with the vesting of
shares of Class C Common;
WHEREAS, the Company, the Executive Investors and the Institutional
Investors have determined that it is in their respective best interests to amend
the New Capital Vesting Agreement to, among other things, clarify the terms and
conditions under which the Executive Investors' rights to the Class C Common
would become vested;
WHEREAS, the Company, the Executive Investors and the New Capital Investor
wish to amend the provisions of the New Capital Vesting Agreement as provided in
paragraph 1 of this Amendment;
WHEREAS, the Institutional Investors collectively own all of the shares of
Institutional Investor Stock (as such term is defined in that certain Stock
Purchase Agreement, dated as of November 26, 1996, by and among the Company and
the other parties thereto (the "Stock Purchase Agreement")) presently
outstanding and the Executive Investors collectively own all of the shares of
Unvested Class C Common presently outstanding and at least a majority of the
shares of
<PAGE>
Executive Stock (as such term is defined in the Stock Purchase Agreement)
presently outstanding; and
WHEREAS, the Institutional Investors and the Executive Investors wish to
consent to the amendment (as provided in paragraph 1 of this Amendment) for
purposes of the Stock Purchase Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties to this Amendment
hereby agree as follows:
1. Amendments to New Capital Vesting Agreement. Pursuant to Section 5G of
-------------------------------------------
the New Capital Vesting Agreement:
(a) Section 3 of the New Capital Vesting Agreement is hereby amended
by adding the following definition to such section:
"Qualified Sale of the Company" means a sale or transfer of all or
-----------------------------
substantially all of the outstanding stock or assets of the Company
and its subsidiaries, including by way of merger or consolidation,
where more than 50% of the consideration for such stock or assets in
such sale or transfer consists of cash and/or publicly traded
securities."
(b) Section 5J of the New Capital Vesting Agreement is hereby amended
by replacing such section in its entirety with the following:
"5J. Termination. The provisions of this Agreement shall terminate
-----------
upon the earlier of (i) the date upon which there remains no
Unvested Class C Common outstanding, (ii) the seventh anniversary
of the date hereof or (iii) the Effective Time (as hereinafter
defined); provided, however, that the obligations under this
-------- -------
Agreement with respect to any events resulting in the termination
hereof and the provisions of Section 6 hereof shall survive such
termination."
(c) The New Capital Vesting Agreement is hereby amended by adding the
following Section at the end of such Agreement:
2
<PAGE>
"Section 6. Obligations of the Parties Upon the Effective Time.
--------------------------------------------------
6A. Disposition of Unvested Class C Common. Upon the earlier to occur
--------------------------------------
of (i) the date immediately prior to the consummation of a Public
Offering, (ii) September 30, 1998 or (iii) the date upon which a
Qualified Sale of the Company is consummated, whichever is
earlier (such earlier date, the "Effective Time"), (i) 294.12
shares of the Unvested Class C Common held by each Executive
Investor (an aggregate of 1,176.47 shares of Unvested Class C
Common) shall be designated "Restricted Stock" (the "Restricted
Stock") and shall thereafter be subject to the terms and
conditions of certain Restricted Stock Agreements between the
Company and each of the Executive Investors in the form attached
hereto as Exhibit A (the "Restricted Stock Agreements") and (ii)
all remaining shares of Unvested Class C Common (an aggregate of
7,477.38 shares of Unvested Class C Common or 1,869.345 shares of
Unvested Class C Common per Executive Investor) (the "Forfeited
Class C Common") shall be automatically forfeited and the
applicable Executive Investor shall thereafter no longer exercise
nor have the right to exercise any of his rights with respect to
such forfeited shares.
6B. Disposition of Nonqualified Common. Upon the Effective Time, (i)
----------------------------------
2,941 shares of Nonqualified Common held by the New Capital
Investor (the "Forfeited Nonqualified Common" and together with
the Forfeited Class C Common, the "Forfeited Shares") shall be
automatically forfeited and the New Capital Investor shall
thereafter no longer exercise nor have the right to exercise any
of its rights with respect to such forfeited shares and (ii) the
5,712.85 remaining shares of Nonqualified Common held by the New
Capital Investor (the "Unrestricted Class A Common") shall no
longer be subject to any risk of forfeiture in connection with
this Agreement.
6C. Procedures. No later than five (5) business days after the
----------
execution and delivery of this Amendment by the Institutional
Investors, the holders of the Forfeited Shares shall promptly
deliver to the Company the certificate or certificates
representing such Forfeited Shares, duly endorsed (or accompanied
by stock powers duly endorsed) in blank by the registered holders
thereof to be held by the Company for transfer and cancellation
by the Company in accordance with Sections 6A and 6B. Upon the
Effective Time, the Company shall take all actions necessary to
(a) execute and deliver to the Executive Investor the Restricted
Stock Agreement, with all blanks appropriately completed, (b)
retire the Forfeited Shares and cause such shares to resume the
status of authorized but unissued shares, (c) promptly cancel the
certificate(s) representing the Forfeited Shares and (d) issue to
(i) the Executive Investors a certificate representing the number
of shares of Restricted Stock pursuant to 6A(i) and in accordance
with the Restricted Stock Agreement and (ii) the New Capital
Investor a certificate, bearing the
3
<PAGE>
appropriate legends, representing the number of shares of
Unrestricted Class A Common pursuant to Section 6B(ii)."
2. Shares Available for Issuance Under the Company's Equity Incentive
------------------------------------------------------------------
Plans. The Institutional Investors each hereby acknowledge that the agreement
- - -----
by the Company to adopt the Company's 1998 Equity and Performance Incentive Plan
(the "Equity Plan") and 1998 Equity Plan for Non-Employee Directors (the
"Director Plan") in substantially the forms attached hereto as Exhibit B and
---------
Exhibit C, respectively, and concurrently therewith to adopt certain amendments
- - ---------
to the Company's 1997 Nonqualified Stock Option Plan (the "1997 Plan Amendment")
in substantially the form attached hereto as Exhibit D, constitutes a material
---------
portion of the consideration for the execution of this Amendment by the
Executive Investors. The Institutional Investors each hereby further
acknowledge that by executing this Amendment, the Institutional Investors each
agree to do all things necessary or appropriate to cause such Plans and the 1997
Plan Amendment to be adopted in accordance with this Section 2.
3. Consent. For all purposes of the Stock Purchase Agreement (including,
-------
without limitation, Sections 4C(ii), (iii) and (xii), 4E and 4G thereof), each
of the Institutional Investors and Executive Investors consents to this
Amendment.
4. Counterparts. This Amendment may be executed in multiple
------------
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
5. Descriptive Headings. The descriptive headings of this Amendment are
--------------------
inserted for convenience only and do not constitute a part of this Amendment.
6. Survival. Notwithstanding anything in the Vesting Agreements to the
--------
contrary, the terms of this Amendment shall survive termination of the Vesting
Agreements.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
_________________________ MADISON DEARBORN CAPITAL
Brian F. Addy PARTNERS, L.P.
By: Madison Dearborn Partners, L.P., its General
Partner
By: Madison Dearborn Partners, Inc., its General
Partner
_________________________ By:________________________________________________
John R. Barnicle Its:_________________________________________
_________________________ FRONTENAC VI, L.P.
Joseph Beatty By: Frontenac Company, its General Partner
By:________________________________________________
Its:_________________________________________
_________________________ BATTERY VENTURES III, L.P.
Robert C. Taylor, Jr. By: Battery Partners III, L.P., its General Partner
By:________________________________________________
Its:_________________________________________
FOCAL COMMUNICATIONS CORPORATION
By:________________________________________________
Its:_________________________________________
5
<PAGE>
EXHIBIT A
[Form of Restricted Stock Agreement]
6
<PAGE>
EXHIBIT B
[1998 Plan]
7
<PAGE>
EXHIBIT C
[Director Plan]
8
<PAGE>
EXHIBIT D
[Amendment to 1997 Plan]
9
<PAGE>
EXHIBIT 4.7
__________, 1998
[Name of Executive Investor]
[Address]
Dear ___________________:
Focal Communications Corporation, a Delaware corporation (the
"Company"), hereby issues to you, in consideration for the conversion of 500
shares of Class C Common Stock, par value $.01 per share, of the Company (the
"Class C Common") held by you pursuant to those certain amendments (the
"Amendments") to the three separate Vesting Agreements dated as of November 27,
1996 by and among the Company, Madison Dearborn Capital Partners, L.P.,
Frontenac VI, L.P. and Battery Ventures III, L.P. (collectively, the
Institutional Investors), Brian F. Addy, John R. Barnicle, Joseph Beatty, Robert
C. Taylor, Jr. [REMOVE NAME OF APPLICABLE EXECUTIVE INVESTOR] and you
(collectively, the "Executive Investors"), as of the Effective Time (as defined
below) and subject to the terms and conditions hereinafter set forth, a number
of shares of Common Stock, par value $.01 per share, of the Company (the "Common
Stock") equivalent to 500 shares of the Class C Common held by you subject to
the above-referenced Vesting Agreements (the "Restricted Stock"). This letter
agreement (the "Restricted Stock Agreement") shall evidence such issuance.
1. DEFINITIONS:
(a) "Change in Control" shall mean the occurrence of any of the
following events:
(i) The Company is merged or consolidated or reorganized
with or into another corporation or other legal
person, and as a result of such merger, consolidation
or reorganization less than a majority of the combined
voting power of the then-outstanding securities of
such corporation or person immediately after such
transaction are held in the aggregate by the holders
of securities entitled to vote generally in the
election of Directors immediately prior to such
transaction;
(ii) or transfer; The Company sells or otherwise transfers
all or substantially all of its assets to any other
corporation or other legal person, and less than a
majority of the combined voting power of the then-
outstanding securities of such corporation or person
immediately
<PAGE>
after such sale or transfer is held in the aggregate
by the holders of Common Stock immediately prior to
such sale
(iii) There is a report filed on Schedule 13D or Schedule
14D-1 (or any successor schedule, form or report), as
promulgated in each case pursuant to the Exchange Act,
disclosing that any person (as the term "person" is
used in Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act) has become the beneficial owner (as the
term "beneficial owner" is defined in Rule 13d-3
promulgated under the Exchange Act or any successor
rule or regulation promulgated thereunder) of
securities representing 50% or more of the Voting
Power; or
(iv) If during any period of two consecutive years,
individuals who at the beginning of any such period
constitute the Directors and any new Directors whose
election by the Board of Directors of the Company or
nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds of the
Directors then still in office who either were
Directors at the beginning of the period or whose
election was previously so approved cease for any
reason to constitute a majority of the Directors.
Notwithstanding the provisions of subparagraph (iii) above,
a "Change in Control" shall not be deemed to have occurred
for the purposes of this Agreement (i) solely because MDCP
either files or becomes obligated to file a report on
Schedule 13D (or any successor schedule or report), as
promulgated pursuant to the Exchange Act, disclosing
beneficial ownership by it of securities representing 50% or
more of the Voting Power, (ii) solely because the Company or
any Company-sponsored employee stock ownership plan or other
employee benefit plan of the Company either files or becomes
obligated to file a report or proxy statement under or in
response to Schedule 13D, Schedule 14D-1, Form 8-K or
Schedule 14A (or any successor schedule, form or report or
item therein), as promulgated in each case pursuant to the
Exchange Act, disclosing beneficial ownership by it of
securities representing 50% or more of the Voting Power or
otherwise, or because the Company reports that a change in
control of the Company has or may have occurred or will or
may occur in the future by reason of such beneficial
ownership or (iii) solely because of a change in control of
any subsidiary (as the term "subsidiary" is defined in
Section 424(f) of the Code) of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended, and any successor statute.
(c) "Director" shall mean a member of the Board of Directors of
the Company.
2
<PAGE>
(d) "Disability" shall mean your inability, due to illness,
accident, injury, physical or mental incapacity or other
disability, to carry out effectively your duties and
obligations to the Company or to participate effectively and
actively in the management of the Company for a period
anticipated to last at least 6 months, as determined by the
Board of Directors of the Company in its good faith
discretion.
(e) "Effective Time" shall mean the earlier to occur of (i) the
date immediately prior to the consummation by the Company of
an Initial Public Offering, (ii) September 30, 1998, or
(iii) the date upon which a Qualified Sale of the Company is
consummated.
(f) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and any successor statute.
(g) "Initial Public Offering" shall mean the initial
underwritten offering of equity securities of the Company to
the general public pursuant to a registration statement
filed with, and declared effective by, the Securities and
Exchange Commission pursuant to the Securities Act, provided
that neither of the following shall constitute an Initial
Public Offering: (i) any issuance of Common Stock as
consideration or financing for a merger or acquisition or
(ii) any issuance of Common Stock, or rights to acquire
Common Stock, to employees of the Company as part of an
incentive or compensation plan.
(h) "MDCP" shall mean Madison Dearborn Capital Partners, L.P.,
a Delaware limited partnership.
(i) "Qualified Sale of the Company" shall mean a sale or
transfer of all or substantially all of the outstanding
stock or assets of the Company and its subsidiaries,
including by way of merger or consolidation, where more than
50% of the consideration for such stock or assets in such
sale or transfer consists of cash and/or publicly traded
securities; provided, that a Qualified Sale of the Company
--------
shall not include a recapitalization, merger or other
reorganization in which the persons holding a majority of
the Company's outstanding equity (by vote or value) prior to
such transaction hold a majority of the equity (by vote or
value) immediately after such transaction.
(j) "Securities Act" shall mean the Securities Act of 1933, as
amended, and any successor statute.
(k) "Successor Entity" shall mean a successor to the Company by
merger, consolidation or other business combination or a
purchaser of all or substantially all of the Company's
assets or a majority of the Company's outstanding voting
securities, as the case may be.
3
<PAGE>
(l) "Voting Power" shall mean, at any time, the votes relating
to the then-outstanding securities entitled to vote
generally in the election of Directors.
2. Effective Time: This Agreement shall take effect as of the
--------------
Effective Time.
3. Cost of Restricted Stock. This grant of Restricted Stock is made
------------------------
in consideration of your execution of the Amendments and forfeiture and
conversion of the shares of Class C Common previously held by you pursuant to
Section 6A of the Amendments.
4. Delivery of Restricted Stock: The Restricted Stock shall be
----------------------------
issued to you as a matter of record as of the Effective Time but shall not be
delivered to you until certain specified conditions, set forth below, are met.
5. Dividend Rights: You shall have full dividend rights with
---------------
respect to each share of Restricted Stock, beginning with the Effective Time,
and shall retain such rights so long as such shares of Restricted Stock are not
forfeited by you prior to vesting or disposed of by you after vesting.
6. Voting Rights: You shall have full voting rights with respect
-------------
to each share of Restricted Stock, beginning with the Effective Time, and shall
retain such rights so long as such shares of Restricted Stock are not forfeited
by you prior to vesting or disposed of by you after vesting.
7. Vesting: Twenty percent (20%) of the shares of Restricted Stock
-------
shall be deemed earned as of the Effective Time and shall vest and be delivered
to you free of any restriction imposed hereunder as of the Effective Time, and
on the date of each subsequent anniversary of the Effective Time (each a
"Vesting Date"), the remaining percentages of the shares of Restricted Stock set
forth below shall vest and be delivered to you free of any restriction imposed
hereunder:
First anniversary of the Effective Time: 10%
Second anniversary of the Effective Time: 15%
Third anniversary of the Effective Time: 20%
Fourth anniversary of the Effective Time: 35%
Notwithstanding the foregoing and except as provided in Section 9 below, such
shares shall vest and be delivered only if you have remained an employee of the
Company for the entire period from the Effective Time to the relevant Vesting
Date. If you cease to be an employee of the Company at any time, then at such
time all shares of Restricted Stock not yet vested shall be forfeited (except as
provided in Section 9 below).
8. Non-transferability: No share of Restricted Stock shall be sold,
-------------------
exchanged, assigned, transferred, pledged, encumbered or otherwise disposed of
by you prior to vesting. Any purported transfer or encumbrance in violation of
the provisions of this Section 8 shall be void, and
4
<PAGE>
the other party to any such purported transfer shall not obtain any rights to or
interest in such Restricted Stock.
9. Accelerated Vesting:
-------------------
(a) Death or Disability: On the date of your death or Disability
-------------------
while serving as an employee of the Company, all shares of Restricted Stock not
yet vested due to the restrictions set forth above shall become immediately
vested and, if not already delivered, shall be delivered to you or your estate.
(b) Change in Control: On the date of a Change in Control occurring
-----------------
during your service as an employee of the Company, all shares of Restricted
Stock not yet vested due to the restrictions set forth above shall become
immediately vested and, if not already delivered, shall be delivered to you.
10. Adjustment Upon Changes in Capitalization: If, by reason of a
-----------------------------------------
stock dividend, stock split, combination of shares, recapitalization, spinoff,
split-up, merger, consolidation or otherwise, the outstanding shares of Common
Stock shall be changed into or exchangeable for a different number or class of
shares of common stock or other securities of the Company or securities of
another corporation, then there shall be substituted for each share of
Restricted Stock the number and type of securities into which each outstanding
share of Common Stock shall be changed or for which each such share of Common
Stock shall be exchanged.
11. Right to Continued Service: Nothing in this agreement shall
--------------------------
confer upon you any right to continue in the service of the Company as an
employee or interfere with the right of the Company to terminate your services
as an employee at any time.
12. Relation to Other Benefits: Any economic or other benefit to you
--------------------------
under this Restricted Stock Agreement shall not be taken into account in
determining any benefits to which you may be entitled under any profit-sharing,
retirement or other benefit or compensation plan maintained by the Company and
shall not affect the amount of any life insurance coverage available to any
beneficiary under any life insurance plan covering directors of the Company.
13. Notices: Any notice to the Company provided for herein shall be
-------
in writing to the Company, marked Attention: Secretary at Focal Communications
Corporation, 200 North LaSalle Street, Suite 800, Chicago, Illinois 60601, and
any notice to any of the Institutional Investors or to you shall be addressed to
the Institutional Investors or to you at the address currently on file with the
Company. Except as otherwise provided herein, any written notice shall be deemed
to be duly given if and when hand delivered, or five (5) business days after
having been mailed by United States registered or certified mail, return receipt
requested, postage prepaid, or three (3) business days after having been sent by
a nationally recognized overnight courier service such as Federal Express or
UPS, addressed as aforesaid. Any party may change the address to which notices
are to be given hereunder by written notice to the other party as herein
specified, except that notices of changes of address shall be effective only
upon receipt.
5
<PAGE>
14. Amendments: Any amendment to this Agreement must be in a writing
signed by the parties hereto .
15. Successors and Assigns: Without limiting Section 8 hereof, the
----------------------
provisions of this Restricted Stock Agreement shall inure to the benefit of, and
be binding upon, your successors, administrators, heirs, legal representatives
and assigns, and the successors and assigns of the Company.
16. Severability: In the event that one or more of the provisions of
------------
this Restricted Stock Agreement shall be invalidated for any reason by a court
of competent jurisdiction, any provision so invalidated shall be deemed to be
separable from the other provisions hereof, and the remaining provisions hereof
shall continue to be valid and fully enforceable.
17. Governing Law: The interpretation, performance, and enforcement
-------------
of this Restricted Stock Agreement shall be governed by the laws of the State of
Delaware, without giving effect to the principles of conflict of laws thereof.
[remainder of page intentionally left blank]
6
<PAGE>
Very truly yours,
FOCAL COMMUNICATIONS CORPORATION
By: ________________________________________
Name:_______________________________________
Title:______________________________________
Agreed to and accepted:
____________________________________________
(Name of Executive Investor)
7
<PAGE>
EXHIBIT 4.8
AMENDMENT NO. 2 TO
STOCK PURCHASE AGREEMENT
------------------------
This Amendment No. 2 to Stock Purchase Agreement (this "Amendment") is
entered into as of this 21/st/ day of August, 1998, among Focal Communications
Corporation, a Delaware corporation (the "Company") and the stockholders listed
on the signature page hereof (the "Stockholders"). Capitalized terms not
otherwise defined in this Agreement are used herein with the meanings assigned
to such terms in the Stock Purchase Agreement, dated November 27, 1996, by and
among the Company and the parties thereto, as amended by Amendment No. 1 to
Stock Purchase Agreement dated January 23, 1998 (the "Stock Purchase
Agreement").
WHEREAS, the Company and the Stockholders wish to amend the provisions of
the Stock Purchase Agreement as provided in paragraph 1 of this Amendment; and
WHEREAS, the Stockholders collectively own all of the Institutional
Investor Stock and at least a majority of the Executive Stock;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties to this Amendment
hereby agree as follows:
1. Amendment to Stock Purchase Agreement. Pursuant to Section 9D of the
-------------------------------------
Stock Purchase Agreement, Section 4 of the Stock Purchase Agreement is hereby
amended by adding the following subsection at the end of such section:
"4K Termination. The provisions of Sections 4C, 4D, 4E, 4G, 4H, 4I, 4J
-----------
and 9G of this Agreement shall terminate at the closing of a Public Offering."
2. Counterparts. This Amendment may be executed in multiple
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
3. Descriptive Headings. The descriptive headings of this Amendment are
--------------------
inserted for convenience only and do not constitute a part of this Amendment.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
_________________________ MADISON DEARBORN CAPITAL
Brian F. Addy PARTNERS, L.P.
By: Madison Dearborn Partners, L.P., its General
Partner
By: Madison Dearborn Partners, Inc., its General
Partner
_________________________ By:_________________________________________
John R. Barnicle Its:___________________________________
_________________________ FRONTENAC VI, L.P.
Joseph Beatty By: Frontenac Company, its General Partner
By:_________________________________________
Its:___________________________________
_________________________ BATTERY VENTURES III, L.P.
Robert C. Taylor, Jr. By: Battery Partners III, L.P., its General
Partner
By:________________________________________
Its:__________________________________
FOCAL COMMUNICATIONS CORPORATION
By:_________________________________________
Its:___________________________________
2
<PAGE>
Exhibit 4.9
AMENDMENT NO. 1 TO
STOCKHOLDERS AGREEMENT AND CONSENT
----------------------------------
This Amendment No. 1 to Stockholders Agreement and Consent (the
"Amendment") is entered into as of this 7th day of July, 1998, among Focal
Communications Corporation, a Delaware corporation (the "Company") and the
stockholders listed on the signature page hereof (the "Stockholders").
Capitalized terms not otherwise defined in this Agreement are used herein with
the meanings assigned to such terms in the Stock Purchase Agreement, dated
November 27, 1996, by and among the parties hereto (the "Stock Purchase
Agreement").
WHEREAS, the Company and the Stockholders wish to amend the provisions of
the Stockholders Agreement, dated November 27, 1996, by and among the parties
hereto (the "Stockholders Agreement") as provided in paragraph 1 of this
Amendment;
WHEREAS, the Stockholders collectively own all of the Institutional
Investor Stock and the Executive Stock, and
WHEREAS, the Stockholders wish to consent to the amendment (as provided in
paragraph 1 of this Amendment) for purposes of the Stock Purchase Agreement and
the Stockholders Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties to this Amendment
hereby agree as follows:
1. Amendment to Stockholders Agreement. Pursuant to Section 9 of the
Stockholders Agreement, clause (i) of the first sentence of Section 3(b) of the
Stockholders Agreement is hereby amended and restated to read in its entirety as
follows:
"by will or pursuant to applicable laws of descent and
distribution,"
and the last sentence of Section 3(b) of the Stockholders Agreement is
hereby amended and restated to read in its entirety as follows:
"A Stockholder's "Family Group" means (i) persons related to such
Stockholder by blood, marriage or adoption, (ii) any trust solely for the
benefit of such Stockholder and/or the persons described in clause (i), and
(iii) any limited partnership; limited liability company, limited liability
partnership or similar entity all of the equity interests of which are held
by such Stockholder and/or persons described in clause (i) and/or clause
(ii)."
2. Consent. For all purposes of the Stock Purchase Agreement (including,
without limitation, Section 4C(xii) and 4E thereof), each of the Stockholders
consents to the amendment set forth in paragraph 1 of this Amendment.
<PAGE>
3. Counterparts. This Amendment may be executed in multiple counterparts,
each of which shall be an original and all of which taken together shall
constitute one and the same agreement.
4. Descriptive Headings. The descriptive headings of this Amendment are
inserted for convenience only and do not constitute a part of this Amendment.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
MADISON DEARBORN CAPITAL
- - -------------------------------- PARTNERS, L.P.
Brian F. Addy By: Madison Dearborn Partners, Its
General Partner
By: Madison Dearborn Partners, Inc., its
General Partner
By:
- - -------------------------------- -------------------------------------
John R. Barnicle Its:
------------------------------------
By:
- - -------------------------------- -------------------------------------
Joseph Beatty Its:
------------------------------------
. BATTERY VENTURES III, L.P.
- - -------------------------------- By: Battery Partners III, L.P., its
Robert C. Taylor, Jr. General Partner
By:
-------------------------------------
Its:
------------------------------------
FOCAL COMMUNICATIONS CORPORATION
By: /s/ Robert C. Taylor, Jr.
-------------------------------------
Its: President
------------------------------------
<PAGE>
3. Counterparts. This Amendment may be executed in multiple counterparts,
each of which shall be an original and all of which taken together shall
constitute one and the same agreement.
4. Descriptive Headings. The descriptive headings of this Amendment are
inserted for convenience only and do not constitute a part of this Amendment.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
MADISON DEARBORN CAPITAL
- - ---------------------------- PARTNERS, L.P.
Brian F. Addy By: Madison Dearborn Partners, its General Partner
By: Madison Dearborn Partners, Inc., its General
Partner
By: xxxxxxx
- - --------------------------- ----------------------------
John R. Barnicle Its: VP
----------------------------
By:
- - --------------------------- ----------------------------
Joseph Beatty Its:
----------------------------
BATTERY VENTURES III, L.P.
- - --------------------------- By: Battery Ventures III, L.P., its General Partner
Robert C. Taylor, Jr.
By:
----------------------------
Its:
----------------------------
FRONTENAC COMPANY
By:
----------------------------
Its:
----------------------------
FOCAL COMMUNICATIONS CORPORATION
By:
----------------------------
Its:
----------------------------
<PAGE>
3. Counterparts. This Amendment may be executed in multiple counterparts,
each of which shall be an original and all of which taken together shall
constitute one and the same agreement.
4. Descriptive Headings. The descriptive headings of this Amendment are
inserted for convenience only and do not constitute a part of this Amendment.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
MADISON DEARBORN CAPITAL
- - -------------------------------- PARTNERS, L.P.
Brian F. Addy By: Madison Dearborn Partners, Its
General Partner
By: Madison Dearborn Partners, Inc., its
General Partner
By:
- - -------------------------------- -------------------------------------
John R. Barnicle Its:
------------------------------------
By:
- - -------------------------------- -------------------------------------
Joseph Beatty Its:
------------------------------------
BATTERY VENTURES III, L.P.
- - -------------------------------- By: Battery Partners III, L.P., its
Robert C. Taylor, Jr. General Partner
By: Nuli Fruli
-------------------------------------
Its: Managing Partner
------------------------------------
FOCAL COMMUNICATIONS CORPORATION
By:
-------------------------------------
Its:
------------------------------------
<PAGE>
3. Counterparts. This Amendment may be executed in multiple counterparts,
each of which shall be an original and all of which taken together shall
constitute one and the same agreement.
4. Descriptive Headings. The descriptive headings of this Amendment are
inserted for convenience only and do not constitute a part of this Amendment.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
MADISON DEARBORN CAPITAL
- - -------------------------------- PARTNERS, L.P.
Brian F. Addy By: Madison Dearborn Partners, Its
General Partner
By: Madison Dearborn Partners, Inc., its
General Partner
By:
- - -------------------------------- -------------------------------------
John R. Barnicle Its:
------------------------------------
By:
- - -------------------------------- -------------------------------------
Joseph Beatty Its:
------------------------------------
BATTERY VENTURES III, L.P.
- - -------------------------------- By: Battery Partners III, L.P., its
Robert C. Taylor, Jr. General Partner
By:
-------------------------------------
Its:
------------------------------------
FRONTENAC COMPANY
By: James E. Crawford
-------------------------------------
Its: General Parnter
-------------------------------------
FOCAL COMMUNICATIONS CORPORATION
By:
-------------------------------------
Its:
------------------------------------
<PAGE>
1998 EQUITY PLAN FOR NON-EMPLOYEE DIRECTORS OF
FOCAL COMMUNICATIONS CORPORATION
PARTICIPATION AGREEMENT
-----------------------
This Participation Agreement ("Participation Agreement") between the
undersigned Non-Employee Director, __________________ ("Director"), and Focal
Communications Corporation (the "Company") is for the Fiscal Year (as
hereinafter defined) commencing January 1, 199__, and is subject to all of the
terms and conditions of the 1998 Equity Plan for Non-Employee Directors of Focal
Communications Corporation (the "Plan"). Capitalized terms not defined herein
have the meanings set forth in the Plan.
1. Election of Voluntary Shares. Pursuant to the Plan, Director may
----------------------------
elect to receive up to 100 percent of his or her Retainer and/or Meeting Fees
from the Company in the form of shares of Common Stock by filing a Participation
Agreement in the form hereof on or before the beginning of the Company's Fiscal
Year (as hereinafter defined) (or such other date as may be specified by the
Board). The Director hereby elects to receive (a) _______% of his or her
Retainer, and (b) _______% of his or her Meeting Fees, in the form of Common
Stock in lieu of a cash payment ("Voluntary Shares") in accordance with the
terms of the Plan and as indicated in this Section 1. This election to receive
Voluntary Shares will be effective for the period beginning on January 1 of such
year and ending on the December 31 of such year (a "Fiscal Year"). Except as the
Board may otherwise provide, this election to receive Voluntary Shares is a one-
time election for the applicable Fiscal Year and, unless Director revokes or
changes such election by filing a new Participation Agreement by the due date
specified above, shall apply to each subsequent Fiscal Year. Once an election
has been terminated, another election may not be made effective until the
commencement of the next subsequent full Fiscal Year unless the Board has
otherwise provided.
2. Payment of Voluntary Shares. No later than ten (10) days following
---------------------------
the end of an Accounting Period (as defined in the Plan) (the "Issuance Date"),
the Company shall issue to Director a number of Voluntary Shares for the prior
Accounting Period equal to (i) the amount of Director's Retainer and Meeting
Fees for such Accounting Period that Director has elected to receive as
Voluntary Shares divided by (ii) the Market Value per Share on the last day of
such Accounting Period (the "Valuation Date"). If the foregoing formula would
result in the issuance of fractional shares of Common Stock, any such fractional
shares shall be disregarded, and the remaining amount of the Retainer shall be
paid in cash. The Company shall pay any and all fees and commissions incurred
in connection with the payment of Voluntary Shares to Director.
3. Director Acknowledgment and Signature. Director understands that
-------------------------------------
participation in the Plan is subject to the terms and conditions contained in
the Plan.
<PAGE>
IN WITNESS WHEREOF, Director has executed this Participation Agreement
on the ______ day of _______________________, 199___.
DIRECTOR
_____________________________________________
Signature
Received and accepted by the Secretary of Focal Communications
Corporation this day of __________, 199___.
_____________________________________________
Signature of the Secretary of
Focal Communications Corporation
2
<PAGE>
EXHIBIT 4.10
AMENDMENT NO. 2 TO
STOCKHOLDERS AGREEMENT AND CONSENT
----------------------------------
This Amendment No. 2 to Stockholders Agreement and Consent (this
"Amendment") is entered into as of this 21/st/ day of August, 1998, among Focal
Communications Corporation, a Delaware corporation (the "Company") and the
stockholders listed on the signature page hereof (the "Stockholders").
Capitalized terms not otherwise defined in this Agreement are used herein with
the meanings assigned to such terms in the Stock Purchase Agreement, dated
November 27, 1996, by and among the Company and the other parties thereto (as
amended, the "Stock Purchase Agreement").
WHEREAS, the Company and the Stockholders wish to amend the provisions of
the Stockholders Agreement, dated November 27, 1996, by and among the Company
and the other parties thereto (as amended, the "Stockholders Agreement") as
provided in paragraph 1 of this Amendment;
WHEREAS, the Stockholders collectively own all of the Institutional
Investor Stock and at least a majority of the Executive Stock; and
WHEREAS, the Stockholders wish to consent to the amendment (as provided in
paragraph 1 of this Amendment) for purposes of the Stock Purchase Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties to this Amendment
hereby agree as follows:
1. Amendment to Stockholders Agreement. Pursuant to Section 9 of the
-----------------------------------
Stockholders Agreement, paragraph 4 of the Stockholders Agreement is hereby
amended by adding the following subparagraph at the end of such paragraph:
"(d) Termination. The provisions of this paragraph 4 shall terminate at
-----------
the closing of a Public Offering."
2. Consent. For all purposes of the Stock Purchase Agreement (including,
-------
without limitation, Sections 4C(xii) and 4E thereof), each of the Stockholders
consents to the amendment set forth in paragraph 1 of this Amendment.
3. Counterparts. This Amendment may be executed in multiple
------------
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
4. Descriptive Headings. The descriptive headings of this Amendment are
--------------------
inserted for convenience only and do not constitute a part of this Amendment.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
_________________________ MADISON DEARBORN CAPITAL
Brian F. Addy PARTNERS, L.P.
By: Madison Dearborn Partners, L.P., its
General Partner
By: Madison Dearborn Partners, Inc., its
General Partner
_________________________ By:________________________________________
John R. Barnicle Its:__________________________________
_________________________ FRONTENAC VI, L.P.
Joseph Beatty By: Frontenac Company, its General Partner
By:________________________________________
Its:__________________________________
_________________________ BATTERY VENTURES III, L.P.
Robert C. Taylor, Jr. By: Battery Partners III, L.P., its General
Partner
By:________________________________________
Its:__________________________________
FOCAL COMMUNICATIONS CORPORATION
By:________________________________________
Its:__________________________________
2
<PAGE>
EXHIBIT 4.11
AMENDMENT NO. 1 TO
EXECUTIVE STOCK AGREEMENT AND
EMPLOYMENT AGREEMENT AND CONSENT
--------------------------------
This Amendment No. 1 to Executive Stock Agreement and Employment Agreement
and Consent (this "Amendment") is entered into as of this 21st day of August,
1998, between Focal Communications Corporation, a Delaware corporation (the
"Company"), Brian F. Addy ("Executive"), John R. Barnicle, Joseph Beatty, Robert
C. Taylor, Jr., Madison Dearborn Capital Partners, L.P., Frontenac VI, L.P. and
Battery Ventures III, L.P. (collectively with Executive, the "Stockholders").
Capitalized terms not otherwise defined in this Agreement are used herein with
the meanings assigned to such terms in the Stock Purchase Agreement, dated
November 27, 1996, by and among the Company and the other parties thereto (as
amended, the "Stock Purchase Agreement") or the Executive Stock Agreement (as
hereinafter defined), as the case may be.
WHEREAS, the Company and the Executive wish to amend the provisions of the
Executive Stock Agreement and Employment Agreement, dated November 27, 1996, by
and between the Company and the Executive (the "Executive Stock Agreement") as
provided in paragraph 1 of this Amendment;
WHEREAS, the Stockholders collectively own all of the Institutional
Investor Stock and at least a majority of the Executive Stock; and
WHEREAS, the Stockholders wish to consent to the amendment (as provided in
paragraph 1 of this Amendment) for purposes of the Stock Purchase Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties to this Amendment
hereby agree as follows:
1. Amendments to Executive Stock Agreement. Pursuant to Section 9(h) of
---------------------------------------
the Executive Stock Agreement:
(a) Paragraph 2(d) of the Executive Stock Agreement is hereby amended
and restated to read in its entirety as follows:
"(d) Acceleration upon a Public Offering. At the closing of a
-----------------------------------
Public Offering, if the Executive is then employed by the
Company, there will vest the number of Unvested Shares which
were scheduled to vest within 12 months following such
closing, and on each anniversary of the Closing hereunder
following the closing of a Public Offering, if the Executive
is then employed by the Company, there will vest 20% of the
original Unvested Shares (so that the
<PAGE>
vesting schedule set forth in paragraph 2(a) above shall have been
effectively accelerated by one year)."
(b) The first two sentences of paragraph 2(e) of the Executive Stock
Agreement are hereby deleted and replaced with the following:
"(e) Acceleration upon Death or Disability. If Executive's
-------------------------------------
employment with the Company or any of its Subsidiaries
terminates by reason of Executive's death or Disability, all
Unvested Shares shall become Vested Shares."
(c) Paragraph 2(f) of the Executive Stock Agreement is hereby
amended by adding the following sentence at the end of such section:
"Any Unvested Shares which the Company (or its assignees
pursuant to paragraph 3(e) hereof) has elected to repurchase
in the Repurchase Notice provided for in paragraph 3(b)
below but for which a closing in accordance with paragraph
3(g) below has not occurred within the time frame set forth
in paragraph 3(g) (as modified by paragraph 3(h), if
applicable or extended by request of or agreement by the
Executive) for a reason other than Executive's failure to
perform his obligations under this paragraph 3 shall
thereafter be deemed Vested Shares for all purposes of this
Agreement and the Stockholders Agreement."
(d) Paragraph 3(c)(ii) of the Executive Stock Agreement is hereby
amended and restated in its entirety to read as follows:
"(ii) The Repurchase Price for shares of Vested Executive
Stock repurchased hereunder shall be the fair market value
of such shares on the date of the Repurchase Notice
(determined according to the method set forth in paragraph
3(d) below)."
(e) Paragraph 3(h) of the Executive Stock Agreement is hereby
amended and restated in its entirety as follows:
"(h) Restrictions. All repurchases of Executive Stock by the
------------
Company shall be subject to applicable restrictions
contained in the Delaware General Corporation Law and
in the Company's and its Subsidiaries debt and equity
financing agreements. If any such restrictions prohibit
the repurchase of Executive Stock hereunder which the
Company is otherwise entitled or required to make, the
time periods provided in this paragraph 3 shall be
suspended for a period of time not exceeding six months
in the aggregate, and the Company may make such
repurchases (subject to compliance with
2
<PAGE>
paragraph 3(b) and the other sections of this paragraph 3,
as modified by this paragraph 3(h), if applicable) as soon
as it is permitted to do so under such restrictions, unless
by such time such Repurchase Option has terminated pursuant
to paragraph 3(i) or has been deemed forfeited pursuant to
this paragraph 3(h). Notwithstanding anything in this
paragraph 3 to the contrary, any repurchase of Executive
Stock by the Company and/or its assignees hereunder for
which a closing in accordance with paragraph 3(g) below has
not occurred within the time frame set forth in paragraph
3(g) (as modified by the paragraph 3(h), if applicable, or
extended by request of or agreement by the Executive) for a
reason other than Executive's failure to perform his
obligations under this paragraph 3 shall be deemed forfeited
and neither the Company nor its assignees shall have any
right to repurchase such shares hereunder."
(f) Paragraph 3(i) of the Executive Stock Agreement is hereby amended
and restated in its entirety to read as follows:
"(i) Termination of Repurchase Option. Unless terminated
sooner pursuant to the terms of the following sentence, all
rights under this paragraph 3 of the Company and/or its
assignees to repurchase Vested Executive Stock (but not
Unvested Shares), whether or not exercised, shall terminate
at the closing of a Public Offering. To the extent not
terminated sooner pursuant to the terms of the immediately
preceding sentence, all rights under this paragraph 3 of the
Company and/or its assignees to repurchase Executive Stock
(whether Vested Shares or Unvested Shares), whether or not
exercised, shall terminate upon a Qualified Sale of the
Company."
(h) The definition of "Noncompete Compensation" set forth in the
fourth sentence of paragraph 7(c) of the Executive Stock Agreement is
hereby amended and restated to read in its entirety as follows:
"Noncompete Compensation" shall consist of 100% of the
salary that Executive received under paragraph 5(d) above as
compensation from the Company and its Subsidiaries
immediately prior to Termination (Executive's "Previous
Salary") together with the continuation of the medical
benefits that the Company provided to Executive immediately
prior to Termination (Executive's "Previous Benefits");
provided that if at any time during the Noncompetition
--------
Period Executive obtains other employment (i) with
comparable medical benefits to Executive's Previous
Benefits, Executive's Noncompete Compensation shall during
the period of such employment not include the continued
provision of medical benefits, and (ii) with a salary
exceeding 100% of Executive's Previous Salary, Executive's
3
<PAGE>
Noncompete Compensation shall during the period of such
employment be reduced (but not below zero) by the amount of
such excess."
2. Consent. For all purposes of the Stock Purchase Agreement (including,
-------
without limitation, Sections 4C(xii), 4E and 4G thereof), each of the
Stockholders consents to the amendment set forth in paragraph 1 of this
Amendment.
3. Counterparts. This Amendment may be executed in multiple
------------
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
4. Descriptive Headings. The descriptive headings of this Amendment are
--------------------
inserted for convenience only and do not constitute a part of this Amendment.
[remainder of page intentionally left blank]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
__________________________ MADISON DEARBORN CAPITAL
Brian F. Addy PARTNERS, L.P.
By: Madison Dearborn Partners, L.P., its General
Partner
By: Madison Dearborn Partners, Inc., its General
Partner
__________________________ By:_______________________________________________
John R. Barnicle Its:________________________________________
__________________________ FRONTENAC VI, L.P.
Joseph Beatty By: Frontenac Company, its General Partner
By:_______________________________________________
Its:________________________________________
___________________________ BATTERY VENTURES III, L.P.
Robert C. Taylor, Jr. . By: Battery Partners III, L.P., its General
Partner
By:_______________________________________________
Its:________________________________________
FOCAL COMMUNICATIONS CORPORATION
By:_______________________________________________
Its:________________________________________
5
<PAGE>
EXHIBIT 4.12
AMENDMENT NO. 1 TO
EXECUTIVE STOCK AGREEMENT AND
EMPLOYMENT AGREEMENT AND CONSENT
--------------------------------
This Amendment No. 1 to Executive Stock Agreement and Employment Agreement
and Consent (this "Amendment") is entered into as of this 21st day of August,
1998, between Focal Communications Corporation, a Delaware corporation (the
"Company"), John R.Barnicle ("Executive"), Brian F. Addy, Joseph Beatty, Robert
C. Taylor, Jr., Madison Dearborn Capital Partners, L.P., Frontenac VI, L.P. and
Battery Ventures III, L.P. (collectively with Executive, the "Stockholders").
Capitalized terms not otherwise defined in this Agreement are used herein with
the meanings assigned to such terms in the Stock Purchase Agreement, dated
November 27, 1996, by and among the Company and the other parties thereto (as
amended, the "Stock Purchase Agreement") or the Executive Stock Agreement (as
hereinafter defined), as the case may be.
WHEREAS, the Company and the Executive wish to amend the provisions of the
Executive Stock Agreement and Employment Agreement, dated November 27, 1996, by
and between the Company and the Executive (the "Executive Stock Agreement") as
provided in paragraph 1 of this Amendment;
WHEREAS, the Stockholders collectively own all of the Institutional
Investor Stock and at least a majority of the Executive Stock; and
WHEREAS, the Stockholders wish to consent to the amendment (as provided in
paragraph 1 of this Amendment) for purposes of the Stock Purchase Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties to this Amendment
hereby agree as follows:
1. Amendments to Executive Stock Agreement. Pursuant to Section 9(h) of
---------------------------------------
the Executive Stock Agreement:
(a) Paragraph 2(d) of the Executive Stock Agreement is hereby amended
and restated to read in its entirety as follows:
"(d) Acceleration upon a Public Offering. At the closing
-----------------------------------
of a Public Offering, if the Executive is then employed by
the Company, there will vest the number of Unvested Shares
which were scheduled to vest within 12 months following such
closing, and on each anniversary of the Closing hereunder
following the closing of a Public Offering, if the Executive
is then employed by the Company, there will vest 20% of the
original Unvested Shares (so that the
<PAGE>
vesting schedule set forth in paragraph 2(a) above shall have
been effectively accelerated by one year)."
(b) The first two sentences of paragraph 2(e) of the Executive Stock
Agreement are hereby deleted and replaced with the following:
"(e) Acceleration upon Death or Disability. If Executive's
-------------------------------------
employment with the Company or any of its Subsidiaries
terminates by reason of Executive's death or Disability, all
Unvested Shares shall become Vested Shares."
(c) Paragraph 2(f) of the Executive Stock Agreement is hereby amended
by adding the following sentence at the end of such section:
"Any Unvested Shares which the Company (or its assignees
pursuant to paragraph 3(e) hereof) has elected to repurchase
in the Repurchase Notice provided for in paragraph 3(b) below
but for which a closing in accordance with paragraph 3(g)
below has not occurred within the time frame set forth in
paragraph 3(g) (as modified by paragraph 3(h), if applicable
or extended by request of or agreement by the Executive) for
a reason other than Executive's failure to perform his
obligations under this paragraph 3 shall thereafter be deemed
Vested Shares for all purposes of this Agreement and the
Stockholders Agreement."
(d) Paragraph 3(c)(ii) of the Executive Stock Agreement is hereby
amended and restated in its entirety to read as follows:
"(ii) The Repurchase Price for shares of Vested Executive
Stock repurchased hereunder shall be the fair market value of
such shares on the date of the Repurchase Notice (determined
according to the method set forth in paragraph 3(d) below)."
(e) Paragraph 3(h) of the Executive Stock Agreement is hereby amended
and restated in its entirety as follows:
"(h) Restrictions. All repurchases of Executive Stock by the
------------
Company shall be subject to applicable restrictions contained
in the Delaware General Corporation Law and in the Company's
and its Subsidiaries debt and equity financing agreements. If
any such restrictions prohibit the repurchase of Executive
Stock hereunder which the Company is otherwise entitled or
required to make, the time periods provided in this paragraph
3 shall be suspended for a period of time not exceeding six
months in the aggregate, and the Company may make such
repurchases (subject to compliance with
2
<PAGE>
paragraph 3(b) and the other sections of this paragraph 3,
as modified by this paragraph 3(h), if applicable) as soon
as it is permitted to do so under such restrictions, unless
by such time such Repurchase Option has terminated pursuant
to paragraph 3(i) or has been deemed forfeited pursuant to
this paragraph 3(h). Notwithstanding anything in this
paragraph 3 to the contrary, any repurchase of Executive
Stock by the Company and/or its assignees hereunder for
which a closing in accordance with paragraph 3(g) below has
not occurred within the time frame set forth in paragraph
3(g) (as modified by the paragraph 3(h), if applicable, or
extended by request of or agreement by the Executive) for a
reason other than Executive's failure to perform his
obligations under this paragraph 3 shall be deemed forfeited
and neither the Company nor its assignees shall have any
right to repurchase such shares hereunder."
(f) Paragraph 3(i) of the Executive Stock Agreement is hereby amended
and restated in its entirety to read as follows:
"(i) Termination of Repurchase Option. Unless terminated
--------------------------------
sooner pursuant to the terms of the following sentence, all
rights under this paragraph 3 of the Company and/or its
assignees to repurchase Vested Executive Stock (but not
Unvested Shares), whether or not exercised, shall terminate
at the closing of a Public Offering. To the extent not
terminated sooner pursuant to the terms of the immediately
preceding sentence, all rights under this paragraph 3 of the
Company and/or its assignees to repurchase Executive Stock
(whether Vested Shares or Unvested Shares), whether or not
exercised, shall terminate upon a Qualified Sale of the
Company."
(h) The definition of "Noncompete Compensation" set forth in the
fourth sentence of paragraph 7(c) of the Executive Stock Agreement is
hereby amended and restated to read in its entirety as follows:
"Noncompete Compensation" shall consist of 100% of the
salary that Executive received under paragraph 5(d) above as
compensation from the Company and its Subsidiaries
immediately prior to Termination (Executive's "Previous
Salary") together with the continuation of the medical
benefits that the Company provided to Executive immediately
prior to Termination (Executive's "Previous Benefits");
provided that if at any time during the Noncompetition
--------
Period Executive obtains other employment (i) with
comparable medical benefits to Executive's Previous
Benefits, Executive's Noncompete Compensation shall during
the period of such employment not include the continued
provision of medical benefits, and (ii) with a salary
exceeding 100% of Executive's Previous Salary, Executive's
3
<PAGE>
Noncompete Compensation shall during the period of such
employment be reduced (but not below zero) by the amount of
such excess."
2. Consent. For all purposes of the Stock Purchase Agreement (including,
-------
without limitation, Sections 4C(xii), 4E and 4G thereof), each of the
Stockholders consents to the amendment set forth in paragraph 1 of this
Amendment.
3. Counterparts. This Amendment may be executed in multiple
------------
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
4. Descriptive Headings. The descriptive headings of this Amendment are
--------------------
inserted for convenience only and do not constitute a part of this Amendment.
[remainder of page intentionally left blank]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
MADISON DEARBORN CAPITAL PARTNERS, L.P.
___________________________
Brian F. Addy By: Madison Dearborn Partners, L.P., its General
Partner
By: Madison Dearborn Partners, Inc., its General
Partner
By:_______________________________________________
___________________________
John R. Barnicle Its:_________________________________________
FRONTENAC VI, L.P.
___________________________
Joseph Beatty By: Frontenac Company, its General Partner
By:_______________________________________________
Its:_________________________________________
BATTERY VENTURES III, L.P.
___________________________
Robert C. Taylor, Jr. By: Battery Partners III, L.P., its General
Partner
By:_______________________________________________
Its:_________________________________________
FOCAL COMMUNICATIONS CORPORATION
By:_______________________________________________
Its:_________________________________________
5
<PAGE>
EXHIBIT 4.13
AMENDMENT NO. 1 TO
EXECUTIVE STOCK AGREEMENT AND
EMPLOYMENT AGREEMENT AND CONSENT
--------------------------------
This Amendment No. 1 to Executive Stock Agreement and Employment Agreement
and Consent (this "Amendment") is entered into as of this 21/st/ day of August,
1998, between Focal Communications Corporation, a Delaware corporation (the
"Company"), Joseph Beatty ("Executive"), Brian F. Addy, John R. Barnicle, Robert
C. Taylor, Jr., Madison Dearborn Capital Partners, L.P., Frontenac VI, L.P. and
Battery Ventures III, L.P. (collectively with Executive, the "Stockholders").
Capitalized terms not otherwise defined in this Agreement are used herein with
the meanings assigned to such terms in the Stock Purchase Agreement, dated
November 27, 1996, by and among the Company and the other parties thereto (as
amended, the "Stock Purchase Agreement") or the Executive Stock Agreement (as
hereinafter defined), as the case may be.
WHEREAS, the Company and the Executive wish to amend the provisions of the
Executive Stock Agreement and Employment Agreement, dated November 27, 1996, by
and between the Company and the Executive (the "Executive Stock Agreement") as
provided in paragraph 1 of this Amendment;
WHEREAS, the Stockholders collectively own all of the Institutional
Investor Stock and at least a majority of the Executive Stock; and
WHEREAS, the Stockholders wish to consent to the amendment (as provided in
paragraph 1 of this Amendment) for purposes of the Stock Purchase Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties to this Amendment
hereby agree as follows:
1. Amendments to Executive Stock Agreement. Pursuant to Section 9(h) of
---------------------------------------
the Executive Stock Agreement:
(a) Paragraph 2(d) of the Executive Stock Agreement is hereby amended
and restated to read in its entirety as follows:
"(d) Acceleration upon a Public Offering. At the closing
-----------------------------------
of a Public Offering, if the Executive is then employed by the
Company, there will vest the number of Unvested Shares which were
scheduled to vest within 12 months following such closing, and
on each anniversary of the Closing hereunder following the closing
of a Public Offering, if the Executive is then employed by the
Company, there will vest 20% of the original Unvested Shares (so
that the
<PAGE>
vesting schedule set forth in paragraph 2(a) above shall have been
effectively accelerated by one year)."
(b) The first two sentences of paragraph 2(e) of the Executive Stock
Agreement are hereby deleted and replaced with the following:
"(e) Acceleration upon Death or Disability. If Executive's
-------------------------------------
employment with the Company or any of its Subsidiaries
terminates by reason of Executive's death or Disability, all
Unvested Shares shall become Vested Shares."
(c) Paragraph 2(f) of the Executive Stock Agreement is hereby
amended by adding the following sentence at the end of such section:
"Any Unvested Shares which the Company (or its assignees
pursuant to paragraph 3(e) hereof) has elected to repurchase
in the Repurchase Notice provided for in paragraph 3(b) below
but for which a closing in accordance with paragraph 3(g) below
has not occurred within the time frame set forth in paragraph
3(g) (as modified by paragraph 3(h), if applicable or extended
by request of or agreement by the Executive) for a reason other
than Executive's failure to perform his obligations under this
paragraph 3 shall thereafter be deemed Vested Shares for
all purposes of this Agreement and the Stockholders Agreement."
(d) Paragraph 3(c)(ii) of the Executive Stock Agreement is hereby
amended and restated in its entirety to read as follows:
"(ii) The Repurchase Price for shares of Vested Executive
Stock repurchased hereunder shall be the fair market value
of such shares on the date of the Repurchase Notice
(determined according to the method set forth in paragraph
3(d) below)."
(e) Paragraph 3(h) of the Executive Stock Agreement is hereby
amended and restated in its entirety as follows:
"(h) Restrictions. All repurchases of Executive Stock by the
------------
Company shall be subject to applicable restrictions contained
in the Delaware General Corporation Law and in the Company's
and its Subsidiaries debt and equity financing agreements.
If any such restrictions prohibit the repurchase of Executive
Stock hereunder which the Company is otherwise entitled or
required to make, the time periods provided in this paragraph
3 shall be suspended for a period of time not exceeding six
months in the aggregate, and the Company may make such
repurchases (subject to compliance with
2
<PAGE>
paragraph 3(b) and the other sections of this paragraph 3,
as modified by this paragraph 3(h), if applicable) as soon
as it is permitted to do so under such restrictions, unless
by such time such Repurchase Option has terminated pursuant
to paragraph 3(i) or has been deemed forfeited pursuant to
this paragraph 3(h). Notwithstanding anything in this
paragraph 3 to the contrary, any repurchase of Executive
Stock by the Company and/or its assignees hereunder for which
a closing in accordance with paragraph 3(g) below has not
occurred within the time frame set forth in paragraph 3(g)
(as modified by the paragraph 3(h), if applicable, or extended
by request of or agreement by the Executive) for a reason other
than Executive's failure to perform his obligations under this
paragraph 3 shall be deemed forfeited and neither the Company
nor its assignees shall have any right to repurchase such shares
hereunder."
(f) Paragraph 3(i) of the Executive Stock Agreement is hereby amended
and restated in its entirety to read as follows:
"(i) Termination of Repurchase Option. Unless terminated sooner
--------------------------------
pursuant to the terms of the following sentence, all rights
under this paragraph 3 of the Company and/or its assignees to
repurchase Vested Executive Stock (but not Unvested Shares),
whether or not exercised, shall terminate at the closing of a
Public Offering. To the extent not terminated sooner pursuant
to the terms of the immediately preceding sentence, all rights
under this paragraph 3 of the Company and/or its assignees to
repurchase Executive Stock (whether Vested Shares or Unvested
Shares), whether or not exercised, shall terminate upon a
Qualified Sale of the Company."
(h) The definition of "Noncompete Compensation" set forth in the
fourth sentence of paragraph 7(c) of the Executive Stock Agreement is
hereby amended and restated to read in its entirety as follows:
"Noncompete Compensation" shall consist of 100% of the salary
that Executive received under paragraph 5(d) above as
compensation from the Company and its Subsidiaries immediately
prior to Termination (Executive's "Previous Salary") together
with the continuation of the medical benefits that the Company
provided to Executive immediately prior to Termination
(Executive's "Previous Benefits"); provided that if at any
--------
time during the Noncompetition Period Executive obtains other
employment (i) with comparable medical benefits to Executive's
Previous Benefits, Executive's Noncompete Compensation shall
during the period of such employment not include the continued
provision of medical benefits, and (ii) with a salary exceeding
100% of Executive's Previous Salary, Executive's
3
<PAGE>
Noncompete Compensation shall during the period of such
employment be reduced (but not below zero) by the amount
of such excess."
2. Consent. For all purposes of the Stock Purchase Agreement (including,
-------
without limitation, Sections 4C(xii), 4E and 4G thereof), each of the
Stockholders consents to the amendment set forth in paragraph 1 of this
Amendment.
3. Counterparts. This Amendment may be executed in multiple
------------
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
4. Descriptive Headings. The descriptive headings of this Amendment are
--------------------
inserted for convenience only and do not constitute a part of this Amendment.
[remainder of page intentionally left blank]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
MADISON DEARBORN CAPITAL
__________________________
Brian F. Addy PARTNERS, L.P.
By: Madison Dearborn Partners, L.P., its General
Partner
By: Madison Dearborn Partners, Inc., its General
Partner
By:_____________________________________________
__________________________ Its:_______________________________________
John R. Barnicle
FRONTENAC VI, L.P.
__________________________
Joseph Beatty By: Frontenac Company, its General Partner
By:_____________________________________________
Its:_______________________________________
BATTERY VENTURES III, L.P.
__________________________
Robert C. Taylor, Jr. . By: Battery Partners III, L.P., its General
Partner
By:_____________________________________________
Its:_______________________________________
FOCAL COMMUNICATIONS CORPORATION
By:_____________________________________________
Its:_______________________________________
5
<PAGE>
EXHIBIT 4.14
AMENDMENT NO. 1 TO
EXECUTIVE STOCK AGREEMENT AND
EMPLOYMENT AGREEMENT AND CONSENT
--------------------------------
This Amendment No. 1 to Executive Stock Agreement and Employment Agreement
and Consent (this "Amendment") is entered into as of this 21/st/ day of August,
1998, between Focal Communications Corporation, a Delaware corporation (the
"Company"), Robert C. Taylor, Jr. ("Executive"), Brian F. Addy, John R.
Barnicle, Joseph Beatty, Madison Dearborn Capital Partners, L.P., Frontenac VI,
L.P. and Battery Ventures III, L.P. (collectively with Executive, the
"Stockholders"). Capitalized terms not otherwise defined in this Agreement are
used herein with the meanings assigned to such terms in the Stock Purchase
Agreement, dated November 27, 1996, by and among the Company and the other
parties thereto (as amended, the "Stock Purchase Agreement") or the Executive
Stock Agreement (as hereinafter defined), as the case may be.
WHEREAS, the Company and the Executive wish to amend the provisions of the
Executive Stock Agreement and Employment Agreement, dated November 27, 1996, by
and between the Company and the Executive (the "Executive Stock Agreement") as
provided in paragraph 1 of this Amendment;
WHEREAS, the Stockholders collectively own all of the Institutional
Investor Stock and at least a majority of the Executive Stock; and
WHEREAS, the Stockholders wish to consent to the amendment (as provided in
paragraph 1 of this Amendment) for purposes of the Stock Purchase Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties to this Amendment
hereby agree as follows:
1. Amendments to Executive Stock Agreement. Pursuant to Section 9(h) of
---------------------------------------
the Executive Stock Agreement:
(a) Paragraph 2(d) of the Executive Stock Agreement is hereby
amended and restated to read in its entirety as follows:
"(d) Acceleration upon a Public Offering. At the
-----------------------------------
closing of a Public Offering,if the Executive is then
employed by the Company, there will vest the number of
Unvested Shares which were scheduled to vest within 12
months following such closing, and on each anniversary
of the Closing hereunder following the closing of a
Public Offering, if the Executive is then employed by
the Company, there will vest 20% of the original
Unvested Shares (so that the
<PAGE>
vesting schedule set forth in paragraph 2(a) above
shall have been effectively accelerated by one year)."
(b) The first two sentences of paragraph 2(e) of the Executive
Stock Agreement are hereby deleted and replaced with the following:
"(e) Acceleration upon Death or Disability. If
-------------------------------------
Executive's employment with the Company or any of its
Subsidiaries terminates by reason of Executive's death
or Disability, all Unvested Shares shall become Vested
Shares."
(c) Paragraph 2(f) of the Executive Stock Agreement is hereby
amended by adding the following sentence at the end of such section:
"Any Unvested Shares which the Company (or its
assignees pursuant to paragraph 3(e) hereof) has
elected to repurchase in the Repurchase Notice provided
for in paragraph 3(b) below but for which a closing in
accordance with paragraph 3(g) below has not occurred
within the time frame set forth in paragraph 3(g) (as
modified by paragraph 3(h), if applicable or extended
by request of or agreement by the Executive) for a
reason other than Executive's failure to perform his
obligations under this paragraph 3 shall thereafter be
deemed Vested Shares for all purposes of this Agreement
and the Stockholders Agreement."
(d) Paragraph 3(c)(ii) of the Executive Stock Agreement is hereby
amended and restated in its entirety to read as follows:
"(ii) The Repurchase Price for shares of Vested
Executive Stock repurchased hereunder shall be the fair
market value of such shares on the date of the
Repurchase Notice (determined according to the method
set forth in paragraph 3(d) below)."
(e) Paragraph 3(h) of the Executive Stock Agreement is hereby
amended and restated in its entirety as follows:
"(h) Restrictions. All repurchases of Executive Stock
------------
by the Company shall be subject to applicable
restrictions contained in the Delaware General
Corporation Law and in the Company's and its
Subsidiaries debt and equity financing agreements. If
any such restrictions prohibit the repurchase of
Executive Stock hereunder which the Company is
otherwise entitled or required to make, the time
periods provided in this paragraph 3 shall be suspended
for a period of time not exceeding six months in the
aggregate, and the Company may make such repurchases
(subject to compliance with
2
<PAGE>
paragraph 3(b) and the other sections of this paragraph
3, as modified by this paragraph 3(h), if applicable)
as soon as it is permitted to do so under such
restrictions, unless by such time such Repurchase
Option has terminated pursuant to paragraph 3(i) or has
been deemed forfeited pursuant to this paragraph 3(h).
Notwithstanding anything in this paragraph 3 to the
contrary, any repurchase of Executive Stock by the
Company and/or its assignees hereunder for which a
closing in accordance with paragraph 3(g) below has not
occurred within the time frame set forth in paragraph
3(g) (as modified by the paragraph 3(h), if applicable,
or extended by request of or agreement by the
Executive) for a reason other than Executive's failure
to perform his obligations under this paragraph 3 shall
be deemed forfeited and neither the Company nor its
assignees shall have any right to repurchase such
shares hereunder."
(f) Paragraph 3(i) of the Executive Stock Agreement is hereby
amended and restated in its entirety to read as follows:
"(i) Termination of Repurchase Option. Unless
--------------------------------
terminated sooner pursuant to the terms of the
following sentence, all rights under this paragraph 3
of the Company and/or its assignees to repurchase
Vested Executive Stock (but not Unvested Shares),
whether or not exercised, shall terminate at the
closing of a Public Offering. To the extent not
terminated sooner pursuant to the terms of the
immediately preceding sentence, all rights under this
paragraph 3 of the Company and/or its assignees to
repurchase Executive Stock (whether Vested Shares or
Unvested Shares), whether or not exercised, shall
terminate upon a Qualified Sale of the Company."
(h) The definition of "Noncompete Compensation" set forth in the
fourth sentence of paragraph 7(c) of the Executive Stock Agreement is
hereby amended and restated to read in its entirety as follows:
"Noncompete Compensation" shall consist of 100% of the
salary that Executive received under paragraph 5(d)
above as compensation from the Company and its
Subsidiaries immediately prior to Termination
(Executive's "Previous Salary") together with the
continuation of the medical benefits that the Company
provided to Executive immediately prior to Termination
(Executive's "Previous Benefits"); provided that if at
--------
any time during the Noncompetition Period Executive
obtains other employment (i) with comparable medical
benefits to Executive's Previous Benefits, Executive's
Noncompete Compensation shall during the period of such
employment not include the continued provision of
medical benefits, and (ii) with a salary exceeding 100%
of Executive's Previous Salary, Executive's
3
<PAGE>
Noncompete Compensation shall during the period of such
employment be reduced (but not below zero) by the
amount of such excess."
2. Consent. For all purposes of the Stock Purchase Agreement (including,
-------
without limitation, Sections 4C(xii), 4E and 4G thereof), each of the
Stockholders consents to the amendment set forth in paragraph 1 of this
Amendment.
3. Counterparts. This Amendment may be executed in multiple
------------
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
4. Descriptive Headings. The descriptive headings of this Amendment are
--------------------
inserted for convenience only and do not constitute a part of this Amendment.
[remainder of page intentionally left blank]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
_________________________ MADISON DEARBORN CAPITAL
Brian F. Addy PARTNERS, L.P.
By: Madison Dearborn Partners, L.P., its General
Partner
By: Madison Dearborn Partners, Inc., its General
Partner
_________________________ By:________________________________________________
John R. Barnicle Its:_________________________________________
_________________________ FRONTENAC VI, L.P.
Joseph Beatty By: Frontenac Company, its General Partner
By:________________________________________________
Its:_________________________________________
_________________________ BATTERY VENTURES III, L.P.
Robert C. Taylor, Jr. By: Battery Partners III, L.P., its General Partner
By:________________________________________________
Its:_________________________________________
FOCAL COMMUNICATIONS CORPORATION
By:________________________________________________
Its:_________________________________________
5
<PAGE>
EXHIBIT 4.15
AMENDMENT NO. 1 TO
REGISTRATION AGREEMENT AND CONSENT
----------------------------------
This Amendment No. 1 to Registration Agreement and Consent (this
"Amendment") is entered into as of this 21st day of August, 1998, among Focal
Communications Corporation, a Delaware corporation (the "Company") and the
stockholders listed on the signature page hereof (the "Stockholders").
Capitalized terms not otherwise defined in this Agreement are used herein with
the meanings assigned to such terms in the Registration Agreement, dated
November 27, 1996, by and among the parties thereto (the "Registration
Agreement") or the Stock Purchase Agreement, dated November 27, 1996, by and
among the parties thereto (the "Stock Purchase Agreement"), as the case may be.
WHEREAS, the Company and the Stockholders wish to amend the provisions of
the Registration Agreement as provided in paragraph 1 of this Amendment;
WHEREAS, the Stockholders collectively own all of the Institutional
Investor Registrable Securities (as defined in the Registration Agreement), all
of the Institutional Investor Stock (as defined in the Stock Purchase
Agreement) and at least a majority of the Executive Stock (as defined in the
Stock Purchase Agreement); and
WHEREAS, the Stockholders wish to consent to the amendment (as provided in
paragraph 1 of this Amendment) for purposes of the Stock Purchase Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties to this Amendment
hereby agree as follows:
1. Amendment to Registration Agreement. Pursuant to Section 8(d) of the
-----------------------------------
Registration Agreement, clause (iii) of the second sentence of Section 1(a) of
the Registration Agreement (and the proviso that follows such clause) is hereby
amended and restated to read in its entirety as follows:
"(iii) and the holders of at least 8% of the Registrable Securities then
outstanding may request registration under the Securities Act of all or any
portion of their Registrable Securities on Form S-2 or S-3 or any similar
short-form registration ("Short-Form Registration") if available; provided
--------
that the aggregate offering value of the Registrable Securities requested
to be registered in any Long-Form Registration must equal at least $20
million if the registration is the Company's Initial Public Offering, at
least $10 million in all other Long-Form Registrations, and at least $2
million in any Short-Form Registration."
2. Consent. For all purposes of the Stock Purchase Agreement (including,
-------
without limitation, Sections 4C(xii) and 4E thereof), each of the Stockholders
consents to the amendment set forth in paragraph 1 of this Amendment.
<PAGE>
3. Counterparts. This Amendment may be executed in multiple
------------
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
4. Descriptive Headings. The descriptive headings of this Amendment are
--------------------
inserted for convenience only and do not constitute a part of this Amendment.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
___________________________ MADISON DEARBORN CAPITAL
Brian F. Addy PARTNERS, L.P.
By: Madison Dearborn Partners, L.P., its
General Partner
By: Madison Dearborn Partners, Inc., its
General Partner
___________________________ By: _______________________________________
John R. Barnicle Its:__________________________________
___________________________ FRONTENAC VI, L.P.
Joseph Beatty By: Frontenac Company, its General Partner
By: _______________________________________
Its:__________________________________
___________________________ BATTERY VENTURES III, L.P.
Robert C. Taylor, Jr. By: Battery Partners III, L.P., its General
Partner
By: _______________________________________
Its:__________________________________
FOCAL COMMUNICATIONS CORPORATION
By: _______________________________________
Its:__________________________________
3
<PAGE>
EXHIBIT 10.1
FIRST AMENDMENT TO THE INTERCONNECTION AGREEMENT UNDER
SECTIONS 251 AND 252 OF THE TELECOMMUNICATIONS ACT OF 1996
This First Amendment ("the Amendment") to the Interconnection Agreement
under Sections 251 and 252 of the Telecommunications Act of 1996 dated September
8, 1998 is entered between Ameritech Information Industry Services, a division
of Ameritech Services, Inc., as an agent of Ameritech Illinois, with its
principal offices at 350 North Orleans, Chicago, Illinois 60654 ("Ameritech"),
and Focal Communication Corporation of Illinois, Inc. ("Focal") with its
principal offices at 200 N. LaSalle Street, Suite 800, Chicago, Illinois 60601.
WHEREAS, Ameritech and Focal are parties to that certain Interconnection
Agreement under Sections 251 and 252 of the Telecommunications Act of 1996 dated
as of October 28, 1996 ("Agreement");
WHEREAS, Focal is interested in purchasing Ameritech's Local Number
Portability ("LNP") Database Access Service for the State of Illinois only.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
Ameritech and Focal agree as follows.
1.0 DEFINITIONS
Unless otherwise defined herein, capitalized terms shall have the meanings
assigned to such terms in the Agreement.
2.0 AMENDMENTS TO THE AGREEMENT
On and after the Amendment Effective Date, the Agreement is hereby amended
as follows:
2.1 Insert the following new Section 5.5.2:
"Each Party is responsible for requesting Interconnection to the other
Party's CCIS network, where SS7 signaling on the trunk group(s) is
desired. Each Party shall connect to a pair of access STPs that serve
each LATA where traffic will be exchanged using a direct connection to
the STPs serving the desired LATA, through the designated Ameritech
state gateway STP or through a third party provider which is connected
to the other Party's signaling network. The Party shall establish
Interconnection at the STP. The rate for signaling links to establish
such Interconnection is set
-1-
<PAGE>
forth in Ameritech FCC Tariff No. 2. If Focal does not possess STPs,
Focal may purchase access to Ameritech's SS7 Network as set forth in
Ameritech's FCC Tariff No. 2."
2.2 Renumber Sections 5.5.2, 5.5.3 and 5.5.4 of the Agreement to Sections
5.5.3, 5.5.4, and 5.5.5 respectively.
2.3 Add the following Section 13.6:
"13.6 LNP Database Access Service.
Ameritech shall provide Focal LNP LRN Information in accordance with
the provisions of Schedule 13.6."
3.0 MISCELLANEOUS
3.1 The Agreement, as amended hereby, shall remain in full force and
effect and each of the parties hereby ratifies and confirms its respective
representations, warranties, covenants and agreements contained in and under the
Agreement. Any and all notices, requests, orders, certificates, documents and
execution and delivery of this Amendment may refer to the "Interconnection
Agreement under Sections 251 and 252 of the Telecommunications Act of 1996" or
may identify such Agreement in any other respect without making specific
reference to this Amendment, but nevertheless all such references shall be
deemed to include this Amendment unless the context shall otherwise require.
3.2 This Amendment shall be deemed to be a contract made under and
governed by the Rules and regulations of the Federal Communications Commission
(FCC), as applicable, and the Telecommunications Act of 1996, and domestic laws
of the State of Illinois, without reference to conflict of law provisions.
3.3 This Amendment and all appendices attached hereto, constitutes the
entire Amendment between the parties and supersedes all previous proposals, both
verbal and written.
3.4 The Parties understand and agree that this Amendment may be superceded
by, or subject to the rules, regulations, or tariffs filed with or issued by the
FCC or may be subject to the approval of the FCC or the Commission as provided
in Section 28.0 of the Agreement. In the event any inconsistency between the
Agreement and such rules, regulations or tariffs, the rules, regulations and
tariffs shall govern. If the Commission, the FCC or court rejects or supersedes
any portion of this Amendment, the parties agree to meet and negotiate in good
faith to arrive at a mutually acceptable modification of the rejected portion
and related provisions; provided that such rejected portion shall not affect the
validity of the remainder of the Agreement.
-2-
<PAGE>
Attached and incorporated herein are:
Schedule 13.6 -LNP (Local Number Portability) Database Access
Service
Appendix A - Specifications and Standards
Appendix B - Call Flow Diagram
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by their duly authorized representatives.
Focal Communications Corporation
of Illinois
By: /s/ John R. Barnille
---------------------
Printed: John R. Barnille
----------------
Title: EVP & C.O.O.
----------------
Date: 9/2/98
----------------
Ameritech Information Industry
Services
By: /s/ Karen S. Vessely
---------------------
Printed: Karen S. Vessely
----------------
Title: President/AIIS
----------------
Date: 9/9/98
----------------
for Ameritech Services, Inc.
as an agent for Ameritech Illinois
-3-
<PAGE>
SCHEDULE 13.6
-------------
1. Definitions
-----------
A. LNP (Local Number Portability) is a technology that allows a end-user
the ability to retain his/her telephone number when switching to a competing
local telephone Service Provider.
B. LNP Database Access Service allows carriers to query Ameritech's LNP
database for LRN information in order to setup the network call routing to
complete the call to a ported telephone number.
C. SS7 (Common Channel Signaling System # 7) is signaling method in which a
single channel conveys, by means of labeled message, signaling information
relating to a multiplicity of circuits or calls and other information, such as
that used for network management.
D. LRN (Location Routing Number) is a 10-digit number used to uniquely
identify a switch that has ported numbers. LRN utilizes AIN and/or IN triggers,
SS7 signaling, and unique 10-digit code for switch identification.
E. Query(ies) is a signaling message requesting processing instructions or
service data contained in a centralized database.
F. Portable numbers are those telephone numbers within an exchange that
have portable capabilities and are assigned to a designated portable exchange.
These are the numbers that are assigned to the designated default switch and
have not been ported to another Local Service Provider. These numbers are
commonly identified as working on the "Donor" switch. Portable numbers are all
numbers in an NXX where portability is allowed. Numbers will be declared
portable on an NXX basis.
G. Ported Numbers are those that have been assigned to other Local Service
Providers providing recipient switch access for Portable exchanges where the
user changes carriers while remaining in the same exchange. This is commonly
termed as the numbers assigned to the "Recipient" switches. The "Recipient"
switch is not the default switch in the SCP. Ported numbers are the subset of
portable numbers that have actually been moved from the LERG based switch (donor
to another switch (recipient).
H. N-1 Carrier, for Local Number Portability, is the originating or
intermediate carrier that is delivering a call to the Ameritech switch for
terminations and is responsible for determining the status and Location Routing
Number of the dialed NXX.
-4-
<PAGE>
I. N-1 Responsibility is the N-1 Carrier who is required to perform to
query calls to ported numbers before routing the call to the terminating
carrier.
J. AIN (Advanced Intelligent Network) is an evolving, service-independent
network architecture that provides important new capabilities for rapid
creation of customized telecommunications services. AIN offers one way to query
a central database to obtain local number portability routing information.
K. IN (Intelligent Network) is a hardware and software platform used to
provide enhanced voice, video and data services. IN offers one way to query a
central database to obtain local number portability routing information.
L. Service Control Point (SCP) is a database in an SS7 network used to
store LRN information.
M. Switching Point (SP) means an SS7 Service capable of initiating and/or
terminating SS7 messages. It may physically be an end office, an access tandem
switch, an operator service system, a database manager, or other point.
N. Service Switching Point (SSP) means the software capability within a
Switching Point (SP) which provides the SP with SS7 message
preparation/interpretation capability plus SS7 transmission/reception access
ability.
O. Signaling Transfer Point (STP) is the point where the customer
interconnects with an SS7 network. In order to connect to Ameritech's SS7
network, Customer-initiated LNP queries must connect with an Ameritech STP in
order to connect to Ameritech's SCP.
2. Description of LNP Database Access Service
------------------------------------------
A. Ameritech will provide to Focal LNP LRN information whenever Focal
initiates a query for such information from an STP or SSP.
B. All queries to Ameritech's LNP database shall use subsystem number (the
designation of application) value of 0 with a translation type of 11 (AIN)
and/or 201 (IN). Focal acknowledges that such subsystem number and translation
type values are necessary for Ameritech to properly process queries to its LNP
database.
C. Focal warrants that it shall send queries conforming to the American
National Standards Institute's (ANSI) approved standards for SS7 protocol and
pursuant to the specification and standards identified in Appendix A. Focal
acknowledges that transmission in said protocol is necessary for Ameritech to
provision its LNP Database Access Service. Other applicable standards include
-5-
<PAGE>
Bellcore specifications defining specific service applications, message types
and formats. Ameritech reserves the right to modify its network pursuant to
other specifications and standards that may become necessary to meet the
prevailing demands within the U.S. telecommunications industry. All such changes
shall be announced in advance.
D. Focal acknowledges agrees to submit in advance of placing the order
LNP Database Access Service to submit a forecast of the volume of queries needed
to the Account Manager. The forecast will include the following items: the LATA
and/or MSA in which the queries will be initiated, Monthly Volume of LNP
queries, and the Busy Hour Volume of LNP queries. The forecast is required to
provide quality service levels. If the actual volumes of LNP queries exceed
120% of the forecasted volumes, the traffic may be subject to blockage to the
extent it is imperiling the reliability of LNP or causing congestion. In such
cases, Focal is required to submit a new forecast to the Account Manger.
E. Focal acknowledges and agrees that SS7 network overload due to
extraordinary volumes of queries and/or other SS7 network messages can and will
have a detrimental effect on the performance of Ameritech's SS7 network. Focal
further agrees that Ameritech in its sole discretion, shall employ certain
automatic and/or manual overload controls within Ameritech's SS7 network to
guard against these detrimental effects. Ameritech shall report to Focal any
instances where overload controls are invoked to block traffic of Focal due to
Focal's SS7 network and Focal agrees in such cases to take immediate corrective
actions as are necessary to cure the conditions causing the overload situation.
F. Focal acknowledges and agrees that any special testing considerations
must be submitted in writing to Focal's Account Manager. Special testing
arrangements must be negotiated for available time frames and dependent on
available Networks resources and testing options needed.
3. Price
-----
A. Ameritech will charge Focal the applicable Nonrecurring Charges for
provisioning Focal's access to the Ameritech LNP Database based on Focal's
current SS7 service. The following Nonrecurring Charges set forth in Ameritech
FCC Tariff No. 2 shall apply:
(1) Administrative Charge,
per order
(2) Originating Point Code,
per OPC, per service,
added or changed,
per STP Pair
-6-
<PAGE>
(3) Global Title Address Translation,
per service,
added or changed,
per STP Pair
B. Ameritech will charge Focal a per query rate of $.001169 for any query
initiated by Focal into Ameritech's LNP database for any information accessed.
C. Ameritech will initially bill Focal in a manual format, until such time
as the mechanized billing system for LNP queries is implemented.
4. Ownership of the LNP Database Information
-----------------------------------------
A. Ameritech retains full and complete ownership and control over the LNP
information in its database.
B. Focal is prohibited from copying, storing, maintaining or creating any
database from any response it receives after initiating a LNP query to
Ameritech's LNP database.
5. Termination of Service
----------------------
A. Ameritech may terminate provision of this Service under this Amendment
at any time after February 28, 1999; provided, however Ameritech must provide
Focal sixty (60) days' prior written notice of such termination.
B. If at any time during the term of this Agreement a state or federal
tariff for LNP Database Access Service becomes effective, the tariff and all
terms and conditions, including all rates, will supersede this Agreement. Under
these circumstances, no termination liability for either party will apply.
C. Notwithstanding anything to the contrary in this Amendment, if legal or
regulatory decisions or rules compel Ameritech or Focal to terminate the
Amendment, Ameritech and Focal shall have no liability to the other in
connection with such termination. Termination under these circumstances shall be
deemed a termination without cause.
-7-
<PAGE>
Appendix A
Specifications and Standards
Description of Subject Area
and Issuing Organization Document Number
- - --------------------------- ---------------
A. Bellcore, CCS Network Interface TR-TSV-000905
Specifications
B. Ameritech, Access to LNP Database AM-TR-NIS-000145
AM-TR-000146
C. Ameritech, Supplement Common Channel AM-TR-OAT-000069
Signaling (CCS)
-8-
<PAGE>
Appendix B
Call Flow Diagram
The following diagram identifies the call flow for LNP Database Access Service.
The numbers on the diagram correspond to the description of the call flow as
noted in the diagram.
[CALL FLOW DIAGRAM OF LNP DATABASE ACCESS SERVICE APPEARS HERE]
- - -------------------
- - ----- Voice Traffic
===== Query Traffic
- - -------------------
NOTE: Redundant SS7 components and links not shown
Basic LNP Database Access Call Sequence
1) Focal's customer dials a number that has an NXX code that has been designated
as number portable and the SSP office suspends the call and launches a query
to the SCP. The query contains the Automatic Number Identification (ANI) type
information and the called digits. The query transport path to the SCP will
depend on the type of SSP interconnection.
2) The SCP's service logic performs the necessary analysis of the ten digit
called number, determines the appropriate routing instructions, and returns a
response to the originating SSP. If the number has been ported, the Location
Routing Number ("LRN") of the recipient switch that now serves the number is
returned as well as the called number.
3) Focal uses the routing information to resume call processing and then
completes the call over the appropriate facility, such as an Ameritech Tandem
Switch.
-9-
<PAGE>
EXHIBIT 10.2
SUBLEASE
BY AND BETWEEN
FADCO, LLC,
a California limited liability company
"SUBLANDLORD"
and
FOCAL COMMUNICATIONS CORPORATION
OF WASHINGTON,
a Delaware corporation
"SUBTENANT"
<PAGE>
SUBLEASE
THIS SUBLEASE ("Sublease") is entered into as of this ____ day of
________________, 1998 (the "Execution Date"), between FADCO, LLC, a California
limited liability company ("Sublandlord") and FOCAL COMMUNICATIONS CORPORATION
OF WASHINGTON, a Delaware corporation ("Subtenant").
RECITALS
--------
A. Sublandlord is the tenant under a certain Lease Agreement dated
June 15, 1976, (the "Original Lease") between L.C.F. Associates, a Washington
limited partnership ("Prime Landlord"), and Pay `N Save Corporation, a
Washington corporation ("Prime Tenant").
B. The Original Lease has been modified by the Lease Amendment and
Understanding dated April 20, 1981, the Lease Amendment dated January 29, 1982,
and the Lease Amendment (Number 3) dated May, 1982. (collectively, the "Lease
Amendments").
C. The Original Lease and the Lease Amendments are collectively referred
to herein as the "Prime Lease" and are attached hereto as Exhibit "A". The
premises leased thereunder are referred to herein as the "Master Premises".
Except as otherwise provided, defined terms shall have the same meaning as such
terms under the Prime Lease.
D. On or about October 27, 1989, Ernst Home Center, Inc., a Delaware
corporation ("Ernst"), succeeded to all of the right, title and interest of the
original Prime Tenant under the Prime Lease, pursuant to that certain Assignment
of Lease dated October 27, 1989. By the Assumption and Assignment of Lease
dated March 24, 1998 and recorded April 16, 1998 as document no. 9804160363 in
the records of the County of King, State of Washington, all right, title and
interest of Ernst under the Prime Lease was assigned to Sublandlord.
E. Pursuant to the terms and conditions of this Sublease, Sublandlord
desires to sublease to Subtenant and Subtenant wishes to sublease from
Sublandlord approximately twenty thousand (20,000) square feet on the third
floor of that approximately one hundred thousand (100,000) square foot building
(the "Building") of which the Master Premises are a part (the "Demised
Premises"). As used herein, "Adjacent Master Premises" shall mean the Master
Premises excluding the Demised Premises. The Demised Premises and the Master
Premises are more particularly depicted on Exhibit B (the "Site Plan") attached
hereto.
F. This Sublease selectively incorporates provisions of the Prime Lease.
Where a particular provision of the Prime Lease is "incorporated and made a part
hereof", or words of similar import, that Prime Lease provision as amended by
any amendments thereto, becomes a part of this Sublease as though it were fully
set forth in the body of this Sublease, but with the references therein to
"Landlord" and "Tenant" referring instead to Sublandlord and Subtenant,
respectively (unless otherwise stated), the references to the "leased premises"
or "premises" referring to the Demised Premises and the references therein to
"Lease" referring instead to this Sublease. Any terms or words in Prime Lease
paragraphs which are incorporated into this Sublease shall have the same meaning
as those terms and words in the Prime Lease and an interpretation of the meaning
of such terms or words under the Prime Lease shall be binding upon Sublessor and
Sublessee under this Sublease.
1
<PAGE>
NOW THEREFORE, in consideration of the mutual covenants herein contained,
and other good and valuable consideration, the parties do hereby for themselves
and their successors and assigns, covenant and agree as follows:
1. FUNDAMENTAL LEASE PROVISIONS. The following Fundamental Lease Provisions
----------------------------
constitute an integral part of this Sublease, and each reference herein to the
Fundamental Lease Provisions shall mean the provisions set forth in this
Paragraph 1. In the event of any conflict between the Fundamental Lease
Provisions and the remainder of this Sublease, the latter shall control.
Address of Sublandlord: FADCO, LLC
3236 Stone Valley Road West, Suite 230
Alamo, CA 94507
Attn: Donald F. Gaube
Telephone: (510) 838-0604
Facsimile: (510) 838-0851
Copy to: Farallon Capital Management, L.L.C.
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
Attn: Stephen L. Millham
Telephone: (415) 421-2132
Facsimile: (415) 421-2133
Address of Subtenant: Focal Communications Corporation
200 North LaSalle Street
Chicago, Illinois 60601
Attn: Michael Wavrek
Telephone: (312) 895-8319
Facsimile: (312) 895-8403
Copy to: Focal Communications Corporation
200 North LaSalle Street
Chicago, Illinois 60601
Attn: Brian Addy
Telephone: (312) 895-8226
Facsimile: (312) 895-8403
Address of Demised Premises: 1511 6th Avenue, Floor 2
Seattle, Washington 98101
2
<PAGE>
Demised Premises Floor Area: Approximately 20,000 square feet
Subtenant's Percentage Share: 16.425%
Permitted Use of Demised
Premises: For use as professional offices and for
the installation, operation and
maintenance of equipment and facilities in
connection with Subtenant's
telecommunications business, and for no
other use whatsoever.
Primary Term: Commencing on the Commencement Date and
ending on the last day of the 120th full
calendar month thereafter.
Actual Commencement Date: ___________________, 1998.
Commencement Date: Ninety (90) days following full execution
of this Lease.
Minimum Monthly Rent: Lease Year Minimum Monthly Rent
---------- --------------------
1 - 3 $36,666.67
4 - 6 $40,333.33
7 - 9 $44,366.67
10 $48,803.33
Option to Extend: One (1) five (5)-year period. (See
Paragraph 3.2)
Option Term Rent: To be adjusted to Fair Market Value
(See Paragraph 3.2)
Security Deposit: $48,803.00
Subtenant's Minimum Liability
Insurance: $2,000,000
Definitions: Unless otherwise provided, those terms set
forth in Paragraph 27, below.
2. SUBLEASE.
--------
2.1 Demise.
------
(a) In consideration of the rents to be paid and the covenants and
agreements to be performed and observed by Subtenant, Sublandlord hereby
subleases to Subtenant, and Subtenant hereby subleases and hires from
Sublandlord, the Demised Premises.
3
<PAGE>
(b) The exterior walls, demising walls, the space above and beneath
the Demised Premises and the roof are not demised under this Sublease, and,
except as otherwise specified in this Sublease, the use thereof, together with
the right to locate, both vertically and horizontally, install, maintain, use,
repair and replace, pipes, utility lines, ducts, conduits, flues, refrigerant
lines, drains, sprinkler mains and valves, access panels, cables, voice and data
communications lines, electrical transmission and distribution facilities, wires
and structural elements leading through the Demised Premises in locations which
will not materially interfere with Subtenant's use thereof and serving other
parts of the Building and other portions of the Master Premises, are hereby
reserved to Sublandlord. Sublandlord shall have, and hereby reserves the right,
to locate, both vertically and horizontally, install, maintain, use, repair and
replace, pipes, utility lines, ducts, conduits, flues, refrigerant lines,
drains, sprinkler mains and valves, access panels, wires and structural elements
leading through the Demised Premises to and from the remainder of the Master
Premises and/or the Common Areas in locations which will not materially
interfere with Subtenant's use of the Demised Premises.
Sublandlord and Subtenant agree that Subtenant's equipment to operate its
business, including Subtenant's required communications, HVAC and electrical
equipment, will necessitate the utilization of portions of the Building which
may be exterior to the Demised Premises, including risers, shafts, chases,
utility entrances, equipment rooms and distribution areas or conduits between
the Demised Premises and other areas of the Building. Subtenant shall be
permitted to utilize those areas available, and to construct necessary conduits
following prior written approval of both Sublandlord and Prime Landlord as to
the location of such equipment, the method of installation and the type of
equipment to be utilized in connection with such additional spaces required for
Subtenant's operation of its business in the Demised Premises.
(c) Prior to the Commencement Date, Subtenant shall cause its
architect to measure the Floor Area of the Demised Premises and certify to
Sublandlord the correct dimensions. If Subtenant's measurements reveal a Floor
Area which is different from twenty thousand (20,000) square feet, Sublandlord
shall have the right to dispute Subtenant's measurement, in which event either
(a) Sublandlord and Subtenant shall mutually agree on the Floor Area of the
Demised Premises, or (b) Sublandlord and Subtenant shall agree to have such
spaces measured by an independent architect mutually acceptable to Sublandlord
and Subtenant, at Sublandlord's expense, in which event Sublandlord and
Subtenant agree to abide by such measurement. Upon the determination of the
actual Floor Area of the Demised Premises the Minimum Monthly Rent, Subtenant's
Percentage Share, and all charges payable by Subtenant hereunder which are based
on the Floor Area of the Demised Premises shall be adjusted to reflect the
actual Floor Area of the Demised Premises. If Subtenant does not cause its
architect to measure the Demised Premises in accordance with this Paragraph
2.1(c), the parties shall be deemed to have accepted the size of the Demised
Premises as twenty thousand (20,000) square feet of Floor Area. And Subtenant's
Percentage Share as 16.425%.
2.2 Prime Lease.
-----------
(a) Subtenant acknowledges that Subtenant's rights to the Demised
Premises are subject to and subordinate to the Prime Lease and those various
covenants, conditions and restrictions, easements and other matters of record
affecting the Prime Lease, the Demised Premises and other parts of the Building
(the "Permitted Exceptions"). Accordingly, if the Prime Lease terminates then
this Sublease shall terminate (except as otherwise provided in any agreement
4
<PAGE>
between Prime Landlord and Subtenant) and Sublandlord shall have no liability
therefor, unless such termination occurs because of a breach of Sublandlord's
obligations under this Sublease. If the Prime Lease terminates because of any
default by Sublandlord thereunder, Subtenant shall attorn to and recognize Prime
Landlord as Sublandlord under this Sublease; provided that Prime Landlord has
executed, no later than one (1) month after the Execution Date, a nondisturbance
agreement in form and substance reasonably acceptable to Subtenant.
(b) Except as expressly provided herein, if Subtenant desires to
take any action, and the Prime Lease would require that Sublandlord obtain Prime
Landlord's consent before undertaking any such action, Subtenant shall not
undertake the same without Prime Landlord's prior written consent, provided that
upon Subtenant's request, Sublandlord shall diligently and promptly use its
reasonable efforts to obtain Prime Landlord's consent to any such action.
(c) Sublandlord shall pay each installment of minimum rental, and
any other sum when the same is due and payable under the terms of the Prime
Lease and will duly observe and perform every term and condition of the Prime
Lease to the extent that such term and condition is not provided in this
Sublease to be observed or performed by Subtenant, except to the extent that any
failure to so pay or to observe or perform shall have resulted, directly or
indirectly, from any default by Subtenant hereunder (including, without
limitation, the failure of Subtenant to pay any amount of the Minimum Monthly
Rent or Additional Rent due hereunder). Sublandlord shall provide Subtenant with
a copy of any notice given to Sublandlord by Prime Landlord under the Prime
Lease, such notice to be delivered within two (2) business days after
Sublandlord's receipt of such notice. Sublandlord will also give Subtenant a
copy of any notice given by Sublandlord to Prime Landlord under the Prime Lease
concurrently with the delivery of such notice to Prime Landlord.
(d) At any time and from time to time, Subtenant may, but shall not
be obligated to, make any payment or take any action necessary to cure a default
by Sublandlord under the Prime Lease provided Subtenant has notified Sublandlord
in writing that Subtenant elects to cure such default and within two (2) days
after Sublandlord's receipt of such notice, with respect to a monetary default,
and ten (10) days after Sublandlord's receipt of such notice, with respect to
all other defaults, and Sublandlord has failed to cure such default nor provided
evidence reasonably acceptable to Subtenant that such default will be cured
before the expiration of the applicable cure period. In the event Subtenant
elects to cure such default as permitted herein, the amount of any such payment
or the cost of any such action which is paid or incurred by Subtenant in good
faith, including reasonable attorney's fees, shall be treated as a sum of money
advanced by Subtenant to Sublandlord and shall be repayable by Sublandlord to
Subtenant on demand provided Subtenant has delivered to Sublandlord with such
demand a written accounting setting forth the itemized amounts expended by
Subtenant accompanied by copies of actual supporting invoices documenting the
cost, fees and expenses incurred.
(e) Subtenant acknowledges that (i) except as expressly provided in
this Sublease, Sublandlord (x) does not assume and shall not have any of the
obligations or liabilities of Prime Landlord under the Prime Lease and (y) is
not making the representations or warranties, if any, made by Prime Landlord in
the Prime Lease and (ii) Sublandlord's ability to satisfy certain of its duties
and obligations under this Sublease are conditioned upon the full and timely
performance of Prime Landlord's obligations under the Prime Lease and
Sublandlord is unwilling to accept any liability whatsoever to Subtenant or any
diminution in its rights under this Sublease as a consequence of Prime
Landlord's failure to perform under the Prime Lease except to the extent
Sublandlord's
5
<PAGE>
failure inhibits or prohibits the performance of Subtenant's obligations or
rights hereunder. Notwithstanding the foregoing, if Prime Landlord defaults in
the performance or observance of any of Prime Landlord's obligations under the
Prime Lease, Sublandlord shall, at Sublandlord's election, (1) make demand of
Prime Landlord to obtain performance of Prime Landlord's obligations (which
performance shall be at Sublandlord's reasonable cost and expense), and if
requested in writing by Subtenant, commence and prosecute legal proceedings
(also at Sublandlord's cost and expense) in the name of Sublandlord or otherwise
against Prime Landlord with counsel reasonably satisfactory to Subtenant and/or
(2) assign to Subtenant all of Sublandlord's rights and benefits under the Prime
Lease which are assignable under the Prime Lease or otherwise to enforce, at
Subtenant's reasonable cost and expense (subject however to reimbursement if
Sublandlord is entitled to and obtains reimbursement therefor from Prime
Landlord under the terms of the Prime Lease), the obligations of Prime Landlord
under the Prime Lease to the extent necessary to cause Prime Landlord to cure
such default. Notwithstanding clause (2) of the immediately preceding sentence,
Subtenant shall not have the right to terminate the Prime Lease, unless
Sublandlord first consents to such termination in writing. Sublandlord and
Subtenant agree to discuss such enforcement proceedings with one another, in
good faith, but such proceeding shall be approved by Sublandlord, which approval
shall not be unreasonably withheld, conditioned or delayed. Any amount of
recovery obtained by Subtenant, if Subtenant enforces Sublandlord's rights under
clause (2) of the first sentence of this subparagraph (e), shall be the property
of Subtenant to the extent that such recovery pertains to the Demised Premises.
(f) Sublandlord shall not modify the Prime Lease or consent to the
modification or creation of any Permitted Exception in any respect which
adversely affects Subtenant, this Sublease or the Demised Premises, or surrender
the Prime Lease, without the prior written consent of Subtenant, which consent
may be granted or withheld in Subtenant's reasonable discretion, and any such
modification or surrender made without such consent shall be null and void and
shall have no effect on the rights of Subtenant under this Sublease. Sublandlord
agrees that if pursuant to the terms of the Prime Lease or otherwise,
Sublandlord shall have the right to cancel or terminate the Prime Lease, then
Sublandlord shall only exercise such rights in accordance with, and only in
accordance with, the written direction of Subtenant. Further, upon receipt of
written request from Subtenant, upon a default by Prime Landlord under the Prime
Lease, Sublandlord shall terminate the Prime Lease to the extent Sublandlord has
the right to do so thereunder.
(g) Subtenant hereby assumes and agrees to perform for the benefit
of Sublandlord and Prime Landlord, each and every present and future obligation
and duty of Sublandlord under the Prime Lease as and to the extent set forth
under this Sublease, and the Permitted Exceptions, as amended with respect to
the Demised Premises, except as follows: (a) Sublandlord, not Subtenant, shall
be responsible for paying minimum rental due under the Prime Lease to Prime
Landlord; and (b) to the extent said obligations or duties arise or relate to a
period (i) after the Term and not in connection with acts or omissions during
the Term; or (ii) before the Execution Date. Subtenant shall not do, suffer or
permit anything to be done which could result in a default under the Prime Lease
or permit the Prime Lease to be canceled or terminated. Subtenant shall
indemnify, defend and hold harmless Sublandlord from and against all Claims
imposed upon or incurred by or assessed against Sublandlord by reason of any
violation or breach of this Sublease by Subtenant or any of its Authorized
Representatives which has resulted, directly or indirectly, in a breach of the
Prime Lease. Sublandlord shall indemnify, defend and hold harmless Subtenant
from and against all Claims imposed upon or incurred by or assessed against
Subtenant by reason of any violation or breach of
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this Sublease by Sublandlord or any of its Authorized Representatives which has
resulted, directly or indirectly, in a breach of the Prime Lease.
2.3 Sublandlord's Representations and Warranties. As of the Execution
--------------------------------------------
Date, Sublandlord represents and warrants to Subtenant as follows:
(a) Attached hereto as Exhibit A is a true, correct and complete
copy of the Prime Lease; the Prime Lease is in full force and effect and neither
Prime Landlord nor Sublandlord, to Sublandlord's actual knowledge, is in default
of any of their respective obligations under the Prime Lease.
(b) Sublandlord has no actual knowledge of any pending or
threatened condemnation or eminent domain proceedings with respect to the Master
Premises. Sublandlord has no actual knowledge that the Master Premises are in
violation of Law, including any Laws relating to Hazardous Substances in, on or
about the Master Premises.
(c) To Sublandlord's actual knowledge, there is no Hazardous
Substance in, on or about the Master Premises, nor, to the best of Sublandlord's
actual knowledge is there any material defect in the systems serving the
Building.
(d) Subject to the receipt of Prime Landlord's consent (i) the
execution and performance of this Sublease by Sublandlord will not violate or
cause a default under any agreement, instrument, or other transaction to which
Sublandlord is a party or by which Sublandlord and/or the Master Premises are
bound and (ii) Sublandlord has full right and power to execute and perform this
Sublease and to grant the estate demised herein.
(e) To Sublandlord's actual knowledge, attached hereto as
Exhibit C is a true and complete list of all Permitted Exceptions.
3. TERM; CONDITIONS.
----------------
3.1 Period. The primary term of this Sublease (the "Primary Term") shall
------
be for the period specified in the Fundamental Lease Provisions, unless sooner
terminated pursuant to other provisions as set forth hereinafter.
3.2 Extension Options. Sublandlord hereby grants to Subtenant one (1)
-----------------
option to extend the Primary Term for a period of five (5) years, commencing on
the expiration of the Primary Term subject to all of the provisions of this
Sublease except as to Minimum Rent, which shall be as set forth hereinafter.
Subtenant may exercise its option to so extend the Term only by delivering
written notice to Sublandlord of Subtenant's election to so extend the Term, no
later than twelve (12) months nor earlier than fifteen (15) months prior to the
expiration of the Primary Term. Sublandlord is, as of the date of this
Sublease, negotiating with Prime Landlord for one (1) additional five-year
extension of the Term and Sublandlord shall diligently use its good faith
efforts to secure such additional extension from Prime Landlord. In the event
Prime Landlord agrees to grant Sublandlord such additional option period,
Sublandlord will so notify Subtenant promptly and Subtenant may further extend
the Term for one (1) additional five (5)-year period by giving written notice of
its election to Sublandlord no less than twelve (12) months nor more than
fifteen (15) months prior to the expiration of the first option period described
above. Notwithstanding anything to the contrary
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<PAGE>
herein, Subtenant's exercise of an option shall be null and void if, at the time
of the exercise of such option or the commencement of such option term,
Subtenant is in default under this Sublease after notice and the lapse of any
cure period. Further, Subtenant's right to exercise the second option shall be
conditioned upon Subtenant's exercise of the first option referenced
hereinabove. All references in this Sublease to "Term" shall mean the Primary
Term and, upon the exercise of any option pursuant to this Paragraph 3.2, the
Primary Term as extended by any such option.
The Minimum Monthly Rent for the option periods shall be the "fair market
rental rate" of the Demised Premises as of the commencement date of the option
periods, respectively. "Fair Market Rental Rate" shall mean the annual minimum
rental rate that Sublandlord should reasonably be able to obtain for the Demised
Premises effective on the commencement date of the respective option periods.
Fair market rental rate shall be based upon the prevailing rental rate for
office space comparable to the Demised Premises in the downtown Seattle,
Washington area in terms of size, location, condition and other relevant
factors, and taking into account the term of the option period, the Permitted
Use and the other provisions of the Prime Lease and the Sublease.
Sublandlord shall provide notice to Subtenant of its determination of the
fair market rental rate within thirty (30) days after Subtenant exercises its
right to extend the Term. Within ten (10) days after receiving such
determination ("Subtenant's Review Period"), Subtenant shall irrevocably elect,
in writing, to do one of the following: (i) accept Sublandlord's determination,
or (ii) object to Sublandlord's determination and with such objection set forth
Subtenant's determination of the fair market rental rate. If Subtenant so
objects, Sublandlord and Subtenant shall use good faith to agree upon such fair
market rental rate. If Sublandlord and Subtenant fail to reach agreement within
fifteen (15) days following Subtenant's Review Period, then the matter shall be
submitted to arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association (or its successor or, if none, a like
organization) then in effect. Such determination shall be final and binding upon
the parties. If Subtenant fails to so accept or object in writing within
Subtenant's Review Period, Subtenant shall conclusively be deemed to have
approved of the Fair market rental rate determined by Sublandlord.
If Subtenant objects to Sublandlord's determination of the fair market
rental rate in accordance with the above, during any period of the Extension
Period that the fair market rental rate is being determined as per the above,
Subtenant shall pay Minimum Monthly Rent equal to 125% of the Minimum Monthly
Rent at the highest rate during the immediately preceding Term and, after the
fair market rental rate is determined, if Subtenant has underpaid Minimum
Monthly Rent for said period, Subtenant shall pay Sublandlord the amount due
within thirty (30) days after demand, and if Subtenant has overpaid Minimum
Monthly Rent, a credit shall be given Subtenant against the rent next coming due
under this Sublease.
3.3 Conditions Precedent to Obligations. The obligations of the parties
-----------------------------------
under this Sublease are expressly conditioned upon the fulfillment of each and
all of the conditions precedent set forth in this Paragraph 3.3 within the
periods expressly provided herein. If any condition remains unsatisfied
following the expiration of the applicable period, then the party for whose
benefit such condition is imposed shall have the right to terminate this
Sublease by written notice to the other party, delivered to such other party
within five (5) days after the expiration of the applicable period, provided the
condition giving rise to such termination has not failed to occur because of a
breach of this Sublease by the terminating party:
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(a) For Subtenant's benefit, Subtenant's receipt from First
American Title Insurance Company of a commitment to issue a Leasehold Owner's
Policy of Title Insurance (which policy shall be paid for by Sublandlord)
insuring Subtenant's interest in the Demised Premises, subject only to the
Permitted Exceptions listed on Exhibit C, of which Subtenant acknowledges
receipt as of the date of this Sublease; and
(b) For the benefit of both Sublandlord and Subtenant:
(1) Prime Landlord consents to this Sublease by way of a Non-Disturbance,
Estoppel and Attornment Agreement in the form attached hereto as Exhibit D
within thirty (30) days following full execution of this Sublease;
(2) Sublandlord's and Prime Landlord's approval of all of Subtenant's
plans and specifications for all of Subtenant's Work in the Demised Premises and
in the Building, within ten (10) business days following submission of same to
Sublandlord, but in no event shall such plans be submitted to Sublandlord any
later than forty-five (45) days following full execution of this Sublease. Such
approval(s) shall not be unreasonably withheld or delayed; and
(3) Approval of Subtenant's use of the Demised Premises, if required by
applicable municipal code, and of all Subtenant's Work in the Demised Premises
and in the Building by all applicable municipal authorities.
3.4 Commencement of Term. In the event that Sublandlord has not delivered
--------------------
the Demised Premises to Subtenant on or prior to November 1, 1998, either
Sublandlord or Subtenant may terminate this Sublease upon fifteen (15) days'
prior written notice to the other, in which event this Sublease shall be null
and void and of no further force or effect. Notwithstanding the foregoing, if
Sublandlord thereafter delivers the Demised Premises during the aforesaid
fifteen-day period, Subtenant's notice of its election to terminate this
Sublease shall be null and void, and this Sublease shall remain in effect.
Postponement of Subtenant's rental obligation before delivery of possession of
the Demised Premises shall be Subtenant's exclusive remedy and in sole
satisfaction of all claims Subtenant might otherwise have by reason of
Sublandlord's failure to deliver the Demised Premises by the Scheduled
Commencement Date. Once the Commencement Date is determined, Sublandlord shall
confirm such Commencement Date by written notice to Subtenant, and Sublandlord
is hereby authorized by Subtenant to insert in the Fundamental Lease Provision
the Actual Commencement Date.
3.5 Early Access. Subtenant shall have the right to enter the Demised
------------
Premises prior to the Commencement Date following full execution of this
Sublease, for the purpose of (i) testing the equipment in the Building;
(ii) commencing Subtenant's Work in the Demised Premises and in other areas of
the Building and (iii) to test Subtenant's equipment and systems installed in
the Building and the Demised Premises. Notwithstanding the foregoing, Subtenant
shall not commence any of Subtenant's Work in the Demised Premises until after
obtaining the consent of Sublandlord and Prime Landlord of plans and
specifications for same. Subtenant shall abide by all terms of this Sublease
during its early entry, other than those terms relating to the payment of any
rental amounts. Subtenant shall indemnify and save Sublandlord harmless from and
against all loss and damage, including damage to person, persons or property, to
the extent same arises from any act or negligence of Subtenant's employees,
contractor or any of its subcontractors, or the agents or employees of any of
same while they are engaged in the performance of any work within the
9
<PAGE>
Demised Premises, or while in or about the Building, arising from any liens or
claims for services rendered or labor or materials furnished in or for the
performance of Subtenant's Work or arising from any accident or injury. Prior to
the initial entry into the Building or the Demised Premises by Subtenant and the
performance of any work therein, Subtenant shall furnish Sublandlord, at
Subtenant's sole cost, a certificate of insurance from Subtenant and Subtenant's
contractors and subcontractors, naming Sublandlord as an additional insured, in
the coverage and amounts reasonably required by Sublandlord. Subtenant
acknowledges and agrees that none of the above-described work or early entry
shall interfere with or delay in any manner any work to be performed by
Sublandlord under this Sublease. Further, Subtenant shall not be charged by
Sublandlord for the use of any freight elevators, access to the Building's
loading docks, utility usage or the use of any other Building facilities or
services during the initial planning and subsequent construction of Subtenant's
Work, nor its move-in process to the Demised Premises.
4. RENT.
----
4.1 Minimum Monthly Rent. Subtenant shall pay to Sublandlord as minimum
--------------------
monthly rent during the Term, without deduction, setoff, prior notice or demand,
except and to the extent set forth otherwise herein, the sum specified in the
Fundamental Lease Provisions, in advance, on the first day of each month
commencing on the Commencement Date ("Minimum Monthly Rent"). Minimum Monthly
Rent for the first month shall be paid on the Commencement Date even if such
date is not the first day of a month. Minimum Monthly Rent for any partial month
shall be prorated at the rate of 1/30th of the Minimum Monthly Rent per day. All
rent shall be paid to Sublandlord at the address to which notices to Sublandlord
are given.
4.2 Triple Net. Except as otherwise provided, Subtenant acknowledges
----------
that the Minimum Monthly Rent payable to Sublandlord shall be absolutely net of
any and all expenses of the Demised Premises (as modified by the provisions of
Articles 7.3 and 8.2) and that Subtenant shall be obligated, at all times from
and after the Execution Date, to pay Subtenant's Percentage Share of any and all
expenses of the Demised Premises required to be paid by Sublandlord under the
Prime Lease (including, without limitation, all taxes, utilities, insurance, and
operating expenses [as such items are described in the Prime Lease and to the
extent described in this Sublease, including, but not limited to, Paragraphs 7
and 8]), and that Sublandlord shall have no obligation to perform or pay any
obligation of Prime Landlord or any third party under the Prime Lease or
otherwise with respect to the Demised Premises, except and to the extent set
forth otherwise in this Sublease; provided, however, Sublandlord shall perform
and pay all of the obligations under the Prime Lease as they relate to the
Adjacent Master Premises.
5. CONDITION OF PREMISES; CONSTRUCTION; OPENING.
--------------------------------------------
5.1 Acceptance By Subtenant. Except for Sublandlord's Work and
-----------------------
Sublandlord's breach of any representations or covenants herein (including, but
not limited to, those set forth in Paragraph 2.3), Subtenant shall accept
possession of the Demised Premises in an "as is" condition with "all faults" as
to all matters, including the following: title; physical condition; size or
dimensions of the Demised Premises; feasibility, desirability or convertibility
of the Demised Premises into any particular use; floor load capacity of the
Demised Premises for Subtenant's intended use of the Demised Premises and
installation of its fixtures and equipment; and the zoning, building and land
use restrictions applicable to the Demised Premises. Notwithstanding the
foregoing to the contrary (i) the Demised Premises shall be delivered to
Subtenant in broom clean condition, free of all non-
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structural, non-core interior walls; (iii) Sublandlord shall affix Subtenant's
corporate identification to the suite entry to the Demised Premises, using
materials and method of affixation as is standard for the Building; and (iii)
Sublandlord shall upgrade the existing office lobby area in the Building to that
which would be found in a Class "A" office building, as such standard is
established in the Seattle, Washington area and (iv) shall remove any demising
walls in the Demised Premises, all of such conditions to be satisfied by
Sublandlord at its cost and expense, on or prior to the date of substantial
completion of Subtenant's Work in the Demised Premises. Sublandlord shall pay
for the removal by Subtenant of any asbestos located in the Demised Premises and
in any risers or shafts in the Building to the extent necessary to install
Subtenant's conduits, as a part of Subtenant's initial work, as such abatement
may be required to comply with applicable Law, and/or as Sublandlord may deem
reasonably necessary, such removal by Subtenant to be in full compliance with
applicable Laws. Sublandlord represents that access to the Common Areas of the
Building is in compliance with applicable building code requirements and with
the specifications required by the Americans with Disabilities Act (the "ADA").
Any alterations or modifications to comply with the ADA or any other applicable
building code requirement necessary in order for Subtenant to use the Demised
Premises for its permitted use shall be completed by Subtenant at its sole cost
and expense. In addition, Sublandlord shall provide Subtenant access to the
Building prior to the Commencement Date to assess the existing floor load
capacity of the Demised Premises. Subtenant and its structural engineer shall be
accompanied by Sublandlord or one of its Authorized Representatives at all times
during such inspections prior to the date of full execution of this Sublease,
and Subtenant agrees to indemnify Sublandlord for any and all damage or injury
caused by such early entrance by Subtenant, and any of its agents, employees or
contractors. Subtenant acknowledges and agrees that Subtenant has conducted its
own due diligence regarding the Demised Premises and that there have been no
representations, warranties or promises to Subtenant by Sublandlord, or its
Authorized Representatives, with respect to the same, except as expressly
contained in this Sublease.
5.2 Subtenant's Work. Subtenant shall, following Sublandlord's delivery
----------------
of the Demised Premises to it, and approval of Subtenant's plans and
specifications as required by the provisions of this Sublease, commence and
diligently prosecute to completion Subtenant's Work in accordance with
Exhibit F attached hereto and made a part hereof; provided that Subtenant shall
have the right to alter Subtenant's Work as required pursuant to local Laws or
because of specific Building conditions. Subtenant shall be responsible for
applying for and obtaining all permits and government approvals that may be
needed to permit Subtenant to construct Subtenant's Work and to occupy and use
the Demised Premises for the Permitted Use. Subtenant's Work, including the work
described in Paragraphs 24 through 28 of this Sublease, shall be performed and
constructed at Subtenant's sole cost and expense. Subtenant shall have the right
to fortify the load bearing capacity of the floors of the Demised Premises upon
prior written approval of its plans and specifications for same by Sublandlord
and Prime Landlord.
5.3 Construction Allowance: Sublandlord shall furnish Subtenant a
----------------------
construction allowance for Subtenant's improvement work at the Demised Premises
of Two Hundred Thousand Dollars ($200,000) (the "Allowance") provided that in no
event shall the Allowance exceed the actual cost of the improvement work by
Subtenant at the Demised Premises. Sublandlord shall pay the Allowance to
Subtenant within sixty (60) days after all of the following conditions are met:
(i) Subtenant has substantially completed all of the work in
accordance with the approved plans and specifications and in accordance with all
other applicable provisions of this Sublease;
11
<PAGE>
(ii) Subtenant has obtained building permits for all of the work
with executed sign offs and has furnished copies thereof to Sublandlord;
(iii) Subtenant has obtained a certificate of occupancy with respect
to the Demised Premises as required, if at all, by applicable Law;
(iv) Subtenant has furnished Sublandlord (a) an affidavit from
Subtenant listing all contractors and suppliers whom Subtenant has contracted
with in connection with the work, together with the cost of each contract, and
(b) an affidavit from Subtenant's general contractor listing all subcontractors
and suppliers whom the general contractor has contracted with in connection with
the work, together with the cost of each contract;
(v) Subtenant has fully paid for all of the work and has furnished
to Sublandlord a certificate from an officer of Subtenant stating that all the
work has been paid for and setting forth the total cost of the work;
(vi) Subtenant has furnished Sublandlord valid unconditional
mechanic's lien releases from the general contractor and all other contractors
and suppliers who performed work or furnished supplies for or in connection with
Subtenant's work at the Demised Premises (including all parties listed in the
affidavits referenced in (iv) above) and such other evidence as Sublandlord may
reasonably request to evidence that no liens can arise from the work; and
(vii) Subtenant is not in default under this Sublease beyond any
applicable notice and cure periods.
All documentation to be furnished by Subtenant to Sublandlord herein shall
be sent to Sublandlord at the address set forth in the Fundamental Lease
Provisions of this Sublease, or such other address of which Sublandlord shall
notify Subtenant.
Subtenant shall in any event also complete promptly and with due diligence
all punchlist items required to be completed by Sublandlord.
If the Term should end prior to the scheduled expiration date by reason of
Subtenant's default under this Sublease, Subtenant shall pay Sublandlord, within
sixty (60) days after the effective date of the early termination, the
unamortized portion of the Allowance, using a straight line amortization over
the Term.
6. USE OF PREMISES.
---------------
6.1 Use. Subtenant may use the Demised Premises solely for the use
---
specified in the Fundamental Lease Provisions and for no other use without
Sublandlord's prior consent, which consent shall not be unreasonably withheld
but shall be subject to obtaining the prior consent from Prime Landlord. In
connection with such use, Subtenant shall have the right to enter into contracts
with other occupants of the Building to provide telecommunications services
("Colocation(s)"). Such right shall in no way be deemed an exclusive right to
provide such services. Subtenant shall provide Sublandlord with all information
about Colocations as Sublandlord, in its sole discretion,
12
<PAGE>
shall request. As set forth in more detail in Paragraph 13 of this Sublease, no
Colocation shall be deemed an assignment of this Sublease, or a sublease of the
Demised Premises.
6.2 Limitations on Use. Subtenant may use the Demised Premises for the
------------------
purpose permitted by Paragraph 6.1 strictly in accordance with the following:
(a) Cancellation of Insurance; Increase in Insurance Rates.
------------------------------------------------------
Subtenant shall not intentionally do, bring, or keep anything in or about the
Demised Premises that will cause a cancellation of any insurance covering the
Demised Premises.
(b) Compliance with Laws. Subtenant shall comply with all Laws
--------------------
concerning the Demised Premises or Subtenant's use of the Demised Premises,
including, without limitation, the obligation, at Subtenant's cost, to alter,
maintain, or restore the Demised Premises and all structural elements thereof
(to the extent the Prime Tenant under the Prime Lease is obligated to alter,
maintain or restore such structural elements under the Prime Lease) in
compliance with all Laws relating to the condition, use, or occupancy of the
Demised Premises during the Term.
(c) Waste; Nuisance. Subtenant shall not use or permit the Demised
---------------
Premises to be used in any manner that will constitute waste, nuisance, or
unreasonable annoyance to other tenants in the Building. No machinery,
apparatus, or other appliance shall be used or operated in or on the Demised
Premises that will in any manner injure, vibrate, shake, or otherwise damage the
Demised Premises and/or the Building.
6.3 Hazardous Substances.
--------------------
(a) Reportable Uses Require Consent. Subtenant shall not engage in
-------------------------------
any activity in, on or about the Demised Premises which constitutes a Reportable
Use of Hazardous Substance without the express prior written consent of
Sublandlord and compliance in a timely manner (at Subtenant's sole cost and
expense) with all applicable Laws. Notwithstanding the foregoing, Subtenant may,
without Sublandlord's prior consent, but in compliance with all applicable Laws,
use any ordinary and customary materials reasonably required to be used by
Subtenant in the normal course of Subtenant's business permitted in the
Building, including gel cell batteries and diesel fuel necessary for the
operation of Subtenant's generator to be installed by Subtenant in accordance
with the applicable provisions of this Sublease, so long as such use is not a
Reportable Use and does not expose the Demised Premises, the Building or the
neighboring properties to any meaningful risk of contamination or damage or
expose Sublandlord to any liability therefor. In addition, Sublandlord may (but
without any obligation to do so) condition its consent to the use or presence of
any Hazardous Substance, activity or storage tank by Subtenant upon Subtenant's
giving Sublandlord such additional assurances as Sublandlord, in its reasonable
discretion, deems necessary to protect itself, the public, the Demised Premises,
the Building and the environment against damage, contamination or injury and/or
liability therefrom or therefor.
(b) Duty to Inform Landlord. If Subtenant knows, or has reasonable
-----------------------
cause to believe, that a Hazardous Substance, or a condition involving or
resulting from same, has come to be located in, on, under or about the Demised
Premises, other than as previously consented to by Sublandlord, Subtenant shall
immediately give written notice of such fact to Sublandlord, Subtenant shall
also immediately give Sublandlord a copy of any statement, report, notice,
registration, application, permit, business plan, license, claim, action or
proceeding given to, or received from,
13
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any governmental authority or private party, or persons entering or occupying
the Demised Premises, concerning the presence, spill, release, discharge of, or
exposure to, any Hazardous Substance or contamination in, on, or about the
Demised Premises, including but not limited to all such documents as may be
involved in any Reportable Uses involving the Demised Premises.
(c) Indemnification. Subtenant shall indemnify, protect, defend
---------------
and hold Sublandlord, its Authorized Representatives, lenders and ground lessor,
if any, and the Demised Premises, and the Building, harmless from and against
any and all loss of rents, Claims and penalties arising out of or involving any
Hazardous Substance or storage tank brought onto the Demised Premises, or the
Building by or for Subtenant or under Subtenant's control. Subtenant's
obligations under this Paragraph 6.3 shall include, but not be limited to, the
effects of any contamination or injury to person, property or the environment
created or suffered by Subtenant, and the reasonable cost of investigation
(including reasonable fees and costs of consultants, attorneys and reasonable
costs incurred for testing), removal, remediation, restoration and/or abatement
thereof, or of any contamination therein involved, and shall survive the
expiration or earlier termination of this Sublease. No termination, cancellation
or release agreement entered into by Sublandlord and Subtenant shall release
Subtenant from its obligations under this Sublease with respect to Hazardous
Substances or storage tanks brought onto the Demised Premises by Subtenant,
unless specifically so agreed by Sublandlord in writing at the time of such
agreement.
(d) Sublessor warrants and represents, to the best of its
knowledge, that (i) no portion of the Demised Premises or the Building or the
underlying real property (including the landscape and parking areas)
(collectively, the "Property") contain any Hazardous Substance at levels which
violate applicable Federal or State regulations; (ii) the soil and ground water
on or under the Property are, as of the date of this Sublease, free of Hazardous
Substances which exceed permissible levels under applicable Federal and State
regulations; (iii) there is no pending or threatened litigation nor any
settlement negotiations relating to the Property in connection with Hazardous
Substances; (iv) Sublandlord has received no written notice or alleged violation
of any applicable Federal or State regulation relating to Hazardous Substances
which could affect the Property.
7. COMMON AREAS.
------------
7.1 Description of Common Areas. The term "Common Areas" means all areas
---------------------------
and facilities that are provided and designated under the Prime Lease for the
general use and convenience of Sublandlord, as the Prime Tenant, and other
tenants of the Building.
7.2 Subtenant's Right to Use. Subject to Paragraph 7.3 below, and the
------------------------
terms of the Prime Lease, Sublandlord grants to Subtenant and its Authorized
Representatives those nonexclusive rights which are granted to Sublandlord under
the Prime Lease to use the Common Areas during the Term. In connection
therewith, Article 1 of the Prime Lease is incorporated herein and made a part
hereof. Sublandlord reserves to itself the right to use the Common Areas,
together with others who are entitled to use the Common Areas, subject to the
provisions of this Sublease. Subtenant shall keep the Common Areas free and
clear of any obstructions created or permitted by Subtenant or resulting from
Subtenant's operations.
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7.3 Maintenance and Management of Common Areas. Subtenant acknowledges
------------------------------------------
that pursuant to Article 22 and other articles of the Prime Lease and this
Sublease, Prime Landlord and Sublandlord have various duties and obligations to
operate, maintain, repair, insure and replace the Common Areas. Subtenant shall
pay to Sublandlord Subtenant's Percentage Share of all costs and expenses
incurred by or payable to Prime Landlord under the Prime Lease to operate,
maintain, repair, insure and replace the Common Areas which exceed Subtenant's
Percentage Share of such expenses for the calendar year 1998 (the "Base Year"),
to the extent that such costs are required to be paid by Sublandlord as Prime
Tenant under the Prime Lease, as well as Subtenant's prorata share of all costs
and expenses incurred by Sublandlord in fulfilling its maintenance obligations
in connection with the Common Areas. In no event shall the provisions of this
Paragraph 7.3 result in a reduction of Minimum Monthly Rent. Such costs shall
be paid by Subtenant to Sublandlord as and when such costs are required to be
paid by Sublandlord to Prime Landlord under the Prime Lease but in no event any
earlier than thirty (30) days following Subtenant's receipt of Sublandlord's
invoice therefor.
7.4 Audit Rights. To the extent that Sublandlord has such rights under
------------
the Prime Lease, on reasonable advance notice and provided Subtenant is not in
then in default beyond any applicable cure period, Sublandlord shall make
available for a reasonable period of time to Subtenant, during the ninety (90)
days following Subtenant's receipt from Sublandlord of the final statement of
the Building operating expenses for a calendar year, Sublandlord's books and
records maintained with respect to the operating expenses for the applicable
calendar year. Such audit shall be conducted only during regular business hours
at the office where Sublandlord maintains expense records, and shall be
conducted by an independent accounting firm. Subtenant shall use the
information contained in Sublandlord's books and records solely for the purpose
of determining the accuracy of the final statement of the operating expenses in
question and shall keep such information and the fact that Subtenant is
examining Sublandlord's books and records confidential and shall not disclose
any of such information in any manner whatsoever. If Subtenant wishes to
contest any item within any such final operating expense statement, Subtenant
shall do so in a written notice received by Sublandlord within sixty (60) days
following the commencement of Subtenant's actual access to Sublandlord's books
and records as aforesaid, which notice shall specify in detail the item or items
being contested and specific grounds therefor. However, the giving of notice
shall not relieve Subtenant from the obligation to pay any deficiency in such
statement in accordance with this Sublease, provided, however, that the payment
of such amount itself shall not constitute an acceptance by Subtenant of the
accuracy of such statement until a final determination as herein provided, or
until Subtenant fails to timely give any notice to Sublandlord of the contest
of any item of the operating expenses as herein provided. If Subtenant timely
gives such a notice to contest to Sublandlord, any dispute with respect to any
item or items in such statement, including any calculations therein, shall be
submitted to binding arbitration, in accordance with the standards and rules
established by the American Arbitration Association, whose decision shall be
binding on the parties. Only in the event that Subtenant retains a non-
contingent fee based auditor and such review by an arbitration panel discloses
an error on the part of Sublandlord of five percent (5%) or more of total
operating expenses shall Sublandlord pay the fees of the arbitrators with
respect to any such dispute, otherwise, the fees shall be paid by Subtenant.
Notwithstanding anything else to the contrary, if Subtenant fails to timely pay
any deficiency in such statement in accordance with the Sublease, whether or not
contested, or if Subtenant fails to timely give notice to audit or contest as
herein provided, Subtenant shall have no further right to contest any item or
items in such statement and Subtenant shall be deemed to have accepted such
statement.
15
<PAGE>
8. TAXES.
-----
8.1 "Real Property Taxes" Defined. The term "Real Property Taxes" shall
-----------------------------
mean all of those taxes, levies, assessments, charges or other similar costs
required to be paid by Sublandlord as the Prime Tenant under Article 4 of the
Prime Lease.
8.2 Payment of Real Property Taxes. Subtenant shall pay to Sublandlord
------------------------------
Subtenant's Percentage Share of all Real Property Taxes which exceed Subtenant's
Percentage Share of Real Property Taxes payable during the Base Year, as and
when such taxes are required to be paid by Sublandlord to Prime Landlord under
the Prime Lease.
8.3 Personal Property Taxes. Subtenant shall pay before delinquency all
-----------------------
taxes, assessments, license fees, and other charges (collectively, "Taxes") that
are levied or assessed against Subtenant during the Term, including, but not
limited to, Taxes levied or assessed against Subtenant's leasehold interest or
Subtenant's Personal Property, Alterations, Subtenant's Work, or Subtenant's
Trade Fixtures installed or located in or on the Demised Premises. On demand by
Sublandlord, Subtenant shall furnish Sublandlord with satisfactory evidence of
these payments.
9. UTILITIES.
---------
Subtenant shall make all arrangements for and pay for all utilities and
services furnished to or used by it, including, without limitation, gas,
electricity, water, telephone service, and trash collection, and for all
connection charges. The Demised Premises will be separately metered by
Sublandlord on or prior to the Commencement Date. If any such charges are not
paid when due, Sublandlord may, after notice to Subtenant, pay the same, and any
amount so paid by Sublandlord shall thereupon become due to Sublandlord from
Subtenant as additional rent together with interest thereon. Sublandlord shall
not be liable in damages or otherwise for any failure or interruption of any
utility service being furnished to the Demised Premises and no such failure or
interruption shall entitle Subtenant to an abatement of rent or to terminate
this Sublease.
Subtenant shall also have access to four (4) 4" conduits in the riser space
of the Building from the point of entry to the Building for telephone lines to
the Demised Premises. Subtenant shall obtain Sublandlord's prior approval,
which shall not be unreasonably withheld or delayed, for all work relating to
such connections in accordance with the terms of this Sublease. Sublandlord
shall use reasonable efforts, so long as same is at no expense to Sublandlord,
to cooperate with Subtenant in locating points of entry to the Building so as to
provide redundancy of access for telecommunication services and providers to the
Building.
10. MAINTENANCE AND REPAIR; ALTERATIONS.
------------------------------------
10.1 Sublandlord's Obligations. Subtenant hereby acknowledges that Prime
-------------------------
Landlord has various duties and obligations to maintain and repair parts of the
Demised Premises pursuant to Article 4 of the Prime Lease, and the common areas
of the Building pursuant to Article 22 of the Prime Lease and that Sublandlord
has no such duties or obligations, except to the extent that Sublandlord fails
to comply with Sublandlord's duties or obligations under Paragraph 2.2 of this
Sublease to attempt to cause Prime Landlord to perform such obligations.
16
<PAGE>
10.2 Subtenant's Maintenance. The second sentence of Article 7 of the
------------------------
Prime Lease is incorporated herein and made a part of this Sublease.
10.3 Construction of Alterations. Except as provided in Paragraph 5.2
---------------------------
above, Subtenant shall not make any Alterations within the Demised Premises
(other than any alterations necessary to fortify the floor of the Demised
Premises and except as may be expressly set forth otherwise in this Sublease, or
in the Prime Lease) without Sublandlord's prior written consent, which consent
shall not be unreasonably withheld, conditioned or delayed whenever
Sublandlord's consent is required. Notwithstanding the foregoing, Subtenant
shall have the right (a) to place or install in the Demised Premises such
fixtures and equipment as Subtenant shall deem desirable for the conduct of
business therein and to select the paint color it desires for the interior of
the Demised Premises; (b) if Prime Landlord so consents (Prime Landlord's
consent to be obtained through Sublandlord, if Prime Landlord's consent is
required as set forth hereinabove), to make such further Alterations as
Subtenant reasonably deems necessary to operate the Demised Premises and (c) to
utilize Subtenant's contractors, so long as same have been approved by
Sublandlord in writing prior to the commencement of such alterations. Any such
Alterations shall be performed in accordance with the terms and conditions of
the Construction Provisions attached hereto as Exhibit G. Any Alterations made
shall remain on and be surrendered with the Demised Premises on expiration or
termination of the Term, unless stated otherwise herein. Sublandlord may elect,
by delivery of written notice, to require Subtenant to remove any Alterations
that Subtenant has made to the Demised Premises. If Sublandlord so elects,
Subtenant at its cost shall remove such Alterations and restore the Demised
Premises to the condition designated by Sublandlord in its election, before the
last day of the Term. Sublandlord hereby acknowledges and agrees that Subtenant
will remove its Trade Fixtures at the end of the Term of this Sublease (as same
may be extended, renewed or modified) and Subtenant acknowledges that it shall
repair all damage caused by the removal of same. If Subtenant makes any
Alterations to the Demised Premises as provided in this paragraph, the
Alterations shall not be commenced until ten (10) business days after
Sublandlord has received written notice from Subtenant stating the date the
installation of the Alterations is to commence so that Sublandlord can post and
record an appropriate notice of nonresponsibility.
10.4 Mechanic's Liens. Subtenant shall pay all costs for construction
----------------
done by it or caused to be done by it on the Demised Premises as permitted by
this Sublease. Subtenant shall keep the Demised Premises and the Building free
and clear of all mechanics' liens or other liens resulting from construction
done by or for Subtenant. Subtenant shall have the right to contest the
correctness or the validity of any such lien if, immediately on demand of
Sublandlord, Subtenant procures and records a lien release bond issued by a
corporation authorized to issue surety bonds in the State of Washington in an
amount equal to one and one-half times the amount of the claim of lien. The
bond shall meet the requirements of any applicable Law and shall provide for the
payment of any sum that the claimant may recover on the claim (together with
costs of suit, if it recovers in the action).
11. INSURANCE; WAIVERS; INDEMNIFICATION.
-----------------------------------
11.1 Liability Insurance. Subtenant, at its cost, shall maintain
-------------------
commercial general liability insurance in the minimum amount specified in the
Fundamental Lease Provisions, insuring against all liability of Subtenant and
its Authorized Representatives arising out of and in connection with Subtenant's
use or occupancy of the Demised Premises or the Building and the business
conducted by Subtenant or any other persons within the Demised Premises. Such
insurance shall include a Broad Form Contractual liability insurance coverage
insuring performance by Subtenant of the
17
<PAGE>
indemnity provisions of Paragraph 11.7. All such policies shall be written to
apply to all bodily injury, property damage, personal injury and other covered
loss, however occasioned, occurring during the policy term. Such coverage shall
also contain endorsements: (i) deleting any employee exclusion on personal
injury coverage; (ii) including employees as additional insureds; and (iii)
providing for coverage of employer's automobile non-ownership liability. All
such insurance shall afford coverage for all claims based on acts, omissions,
injury and damage, which claims occurred or arose (or the onset of which
occurred or arose) in whole or in part during the policy period. Subtenant shall
also maintain Workers' Compensation and any other insurance which may be
required in accordance with applicable Law.
11.2 Subtenant's Personal Property and Fire Insurance. At all times
------------------------------------------------
during the Term, Subtenant, at its cost, shall maintain on all Subtenant's
Personal Property, Subtenant's Work and Alterations, in, on, or about the
Demised Premises, a policy of standard fire and extended coverage insurance,
with vandalism and malicious mischief endorsements, to the extent of at least
one hundred percent (100%) of their replacement value. The proceeds from any
such policy shall be used by Subtenant for the replacement of Subtenant's
Personal Property or the restoration of Subtenant's Work or Alterations.
Sublandlord, Prime Landlord and their respective Mortgagees (as defined in
Paragraph 14.5) shall be named as insureds on all such policies.
11.3 Fire Insurance - Demised Premises. Subtenant hereby acknowledges
---------------------------------
that Prime Landlord has various rights, duties and obligations regarding fire
insurance with extended coverage for the Demised Premises, and that Sublandlord
shall have no duties or obligations to so insure the Demised Premises. Subtenant
shall pay to Sublandlord Subtenant's Percentage Share of all premiums and other
costs or expenses required to be paid by Sublandlord to Prime Landlord as Prime
Tenant under the Prime Lease, as and when such amounts are required to be paid
by Sublandlord under the Prime Lease. If Sublandlord provides such insurance on
the Demised Premises as permitted under Article 12 of the Prime Lease, Subtenant
shall pay to Sublandlord Subtenant's Percentage Share of all premiums and costs
in connection with such insurance within fifteen (15) days after Sublandlord
delivers to Subtenant an invoice therefor. In no event shall Subtenant's
obligations under this Paragraph 11.3 be duplicative.
11.4 Other Insurance Matters. All insurance required to be maintained by
-----------------------
Subtenant under this Sublease shall: (a) be issued by insurance companies
authorized to do business in the State of Washington, with a financial rating of
at least A-XII as rated in the most recent edition of Best's Insurance Reports;
(b) be issued as a primary policy, and any insurance held by Sublandlord or
Prime Landlord shall be excess insurance; (c) contain an endorsement requiring
thirty (30) days' prior written notice from the insurance company to both
parties, Prime Landlord and the Mortgagee of Sublandlord and Prime Landlord, if
any, before cancellation or change in the coverage, scope, or amount of any
policy; (d) require Subtenant to deposit with Sublandlord prior to the
commencement of the Term, a certificate of all insurance policies required under
this Sublease (which certificate shall state that Sublandlord may rely thereon)
and Subtenant shall also deliver certificates of renewal not less than thirty
(30) days before expiration of the term of each of the policies; (e) name
Sublandlord and Prime Landlord and Sublandlord's and Prime Landlord's respective
Mortgagee as additional insureds; (f) provide for severability of interests and
that an act or omission of one of the parties insured under the policy shall not
reduce or avoid coverage to the other parties insured under the policy; and (g)
be subject to reasonable increase, not more frequently than every two (2) years,
if in the opinion of the insurance broker retained by Sublandlord, the amount of
insurance coverage
18
<PAGE>
maintained by Subtenant at that time is not adequate. In such case, Subtenant
shall increase the insurance coverage as reasonably required by Sublandlord's
insurance broker.
11.5 Waiver of Subrogation. Notwithstanding anything to the contrary
---------------------
contained in this Sublease or the Prime Lease, the parties release and waive any
Claims against each other, and their respective officers, directors, partners,
employees, agents, licensees and invitees for right to recovery for damage or
injury to such waiving party or the property of such waiving party or the
property of others under the waiving party's control to the extent such injury
or damage is covered by insurance required to be, or actually is, carried by the
other party. The release and waiver by Subtenant shall expressly extend to
Prime Landlord and Prime Landlord's Authorized Representatives. Each party
shall cause each insurance policy obtained by such party as required under this
Sublease or the Prime Lease to provide that the insurance company waives all
right of recovery by way of subrogation as specified above in connection with
any damage or injury covered by such policy. The parties shall use reasonable
efforts to obtain insurance policies which do not charge an additional premium
for such waivers of subrogation. If, after exercise of such reasonable efforts,
an insurer requires the payment of an additional premium for such waiver of
subrogation, the party undertaking to obtain the insurance shall notify the
other party of the amount of such additional premium. The other party shall
have a period of ten (10) days after receiving the notice to deliver payment of
such additional premium to the other party. If such party refuses to pay the
additional premium charged, the other party is relieved of the obligation to
obtain a waiver of subrogation rights with respect to the particular insurance
involved, provided, however, the foregoing waiver and release with respect to
injury or damage covered by such policy shall still apply.
11.6 Exculpation of Sublandlord. Except to the extent of Sublandlord's
--------------------------
gross negligence or intentional acts, neither Sublandlord nor Sublandlord's
Authorized Representatives shall be liable to Subtenant for any damage from any
cause to Subtenant or Subtenant's property, including, but not limited to, lost
profits and consequential damages. Subtenant waives and releases all claims
against Sublandlord for damage to person or property, including, but not limited
to, lost profits and consequential damages, arising for any reason, except that
Sublandlord shall be liable to Subtenant for damage to Subtenant resulting from
the actively-negligent acts or omissions of Sublandlord or its Authorized
Representatives acting within the scope of their authority.
11.7 Indemnification. Subtenant shall indemnify, protect, defend and hold
---------------
Sublandlord and Prime Landlord and the Authorized Representatives of
Sublandlord and Prime Landlord harmless from all Claims arising out of the use
of the Demised Premises or resulting from the acts or omissions of Subtenant or
Subtenant's Authorized Representatives occurring in, on or about the Demised
Premises and the Building and from a breach of any duties or obligations of
Subtenant hereunder. Sublandlord shall indemnify, protect, defend and hold
harmless Subtenant and Subtenant's Authorized Representatives from all Claims
arising out of the use of the Adjacent Master Premises or resulting from the
acts or omissions of Sublandlord or Sublandlord's Authorized Representatives
occurring in, on or about the Master Premises and the Building and from a breach
of any duties or obligations of Sublandlord hereunder.
19
<PAGE>
12. DAMAGE AND DESTRUCTION; CONDEMNATION.
-------------------------------------
12.1 Damage and Destruction. If, during the Term, the Demised Premises
----------------------
are totally or partially damaged or destroyed, Sublandlord shall use reasonable
efforts to cause Prime Landlord to repair, restore and rebuild the same in the
manner provided under the Prime Lease with all reasonable dispatch and
diligence. Such damage or destruction shall not terminate this Sublease unless
Prime Landlord has the right to terminate the Prime Lease under the terms of the
Prime Lease. If Prime Landlord restores the Demised Premises, Subtenant shall
be required to promptly commence and diligently pursue the restoration of
Subtenant's Work, Subtenant's Trade Fixtures and Subtenant's Personal Property.
Such items shall be the sole responsibility of Subtenant to restore and
Sublandlord shall have no responsibility for such restoration. Notwithstanding
anything to the contrary herein, Subtenant shall have the right to terminate
this Sublease to the extent that Sublandlord has such rights under the Prime
Lease, by Subtenant's written notice of its election to require Sublandlord to
exercise such rights. Notwithstanding any contrary provision of this Sublease,
if damage or destruction to the Demised Premises occurs such that Sublandlord as
Prime Tenant under the Prime Lease has the right to terminate the Prime Lease,
either Sublandlord or Subtenant can terminate this Sublease by delivering notice
to the other party not more than fifteen (15) days after the event causing such
damage or destruction, unless Subtenant exercises any unexercised Options
hereunder within ten (10) days after receipt of Sublandlord's notice terminating
this Sublease, in which case this Sublease shall continue in full force and
effect. Unless the damage or destruction is caused by Subtenant's willful
misconduct, Minimum Monthly Rent shall abate to the extent that, and for so long
as, minimum rental is abated under the Prime Lease. In the event this Sublease
is terminated pursuant to this Paragraph 12, Minimum Monthly Rent, additional
rent and all other charges payable by Subtenant hereunder shall be abated as of
the date of the casualty. In the event of damage or destruction to the Demised
Premises which results in the termination of the Prime Lease (including by
exercise of those rights to terminate the Prime Lease, as more specifically set
forth therein), this Sublease shall similarly terminate without any further
liability. The provisions of this Sublease are intended to exclusively govern
the parties' obligations concerning continuation of the tenancy following damage
or destruction to the Demised Premises. Accordingly, Sublandlord and Subtenant
waive the provisions of any Laws with respect to any damage or destruction of
the Demised Premises or any rights of the parties hereto to terminate this
Sublease in the event of such damage or destruction.
12.2 Condemnation. In the event any part of the Demised Premises or the
------------
Common Areas is taken or condemned by any competent authority or is conveyed by
deed in lieu of condemnation (a "Taking") and Sublandlord as the Prime Tenant
has the right to terminate the Prime Lease, Subtenant shall have the right to
terminate this Sublease within forty-five (45) days after the earlier of the
date of title transfer or the date of taking of possession by the condemning
authority. If there is a Taking of a portion of the Demised Premises, and this
Sublease is not terminated, all of the terms of this Sublease shall continue in
effect, except that Minimum Monthly Rent shall be reduced to the same extent,
and for so long as, minimum rental is reduced under the Prime Lease. If
Subtenant does not elect to terminate this Sublease as set forth herein and if
the Prime Lease is not terminated as permitted under the terms of the Prime
Lease, then Sublandlord shall use reasonable efforts to cause the Prime Landlord
to make all necessary repairs or alterations to the Demised Premises or the
Common Areas as required under the Prime Lease. Subtenant shall not have any
right to any portion of the proceeds of any award for a Taking of the Demised
Premises; provided, however, Subtenant may make separate claim for the Taking of
its fixtures, leasehold improvements, and expenses for
20
<PAGE>
moving Subtenant's fixtures, stock in trade and inventory. In the event of a
Taking which results in the termination of the Prime Lease (including by
exercise of those rights to terminate the Prime Lease, as more specifically set
forth therein), this Sublease shall similarly terminate without any further
liability. Sublandlord and Subtenant hereby waive the provisions of any
applicable Law allowing either party to petition the court with jurisdiction
thereof to terminate this Sublease in the event of a Taking of the Demised
Premises or the Common Areas.
13. ASSIGNMENT AND SUBLEASE.
-----------------------
13.1 Sublandlord's Consent. Article 8 of the Prime Lease is incorporated
---------------------
herein and made a part of this Sublease. Notwithstanding the foregoing, if
Sublandlord consents to an assignment or sublease, Subtenant acknowledges that
Prime Landlord's consent is still required under the Prime Lease and Sublandlord
agrees to use reasonable efforts and diligence to obtain such consent.
Sublandlord's consent shall not be required in the event Subtenant assigns its
interest under this Sublease, or subleases all or any portion of the Demised
Premises, to a wholly-owned corporation or subsidiary of Subtenant, Subtenant's
parent or to an affiliate of Subtenant, or in the event that Subtenant merges
with another entity; provided however, Subtenant shall promptly advise
Sublandlord of any such assignment or sublease after same is entered into by
Subtenant. For purposes of this Sublease, an "affiliate" shall be defined as an
entity who is wholly owned by the corporation that wholly owns Subtenant. Any
consent of Sublandlord required by this Paragraph 13 shall not be unreasonably
withheld or delayed, provided that any such proposed assignee or subtenant shall
have a financial worth which meets or exceeds that of Subtenant as of the date
of this Sublease. In no event shall Subtenant be relieved of any of its
obligations hereunder in the event of an assignment of this Sublease or a
sublease of the Demised Premises.
13.2 Right of Recapture. During the Term, Subtenant agrees that Subtenant
------------------
will not assign its interest in the Sublease, or sublet the Demised Premises to
any person or business organization without first giving Sublandlord notice of
the intended assignment or subletting and the intended date thereof and the name
of the business organization involved and the effective date of the intended
assignment or subletting and the amount of the unamortized cost hereinafter
referred to. If Sublandlord's consent is required under Paragraph 13.1 above,
within fifteen (15) days after the giving of such notice by Subtenant to
Sublandlord of such intended assignment or subletting, Sublandlord gives notice
to Subtenant that Sublandlord elects to terminate this Sublease as of said
intended date of said assignment or subletting and Subtenant does not within
five (5) days withdraw its request to assign or sublet, then this Sublease shall
terminate on said intended date as if said intended date were the date
originally fixed herein for the termination hereof. Notwithstanding the
foregoing, in the event Sublandlord elects to terminate this Sublease Subtenant
may rescind its requested assignment by written notice to Sublandlord within ten
(10) days following Sublandlord's written notice to Subtenant of its election to
terminate this Sublease. Notwithstanding the foregoing to the contrary,
Sublandlord acknowledges that Subtenant's business to be conducted in the
Demised Premises requires installation in the Demised Premises of certain
communications equipment by telecommunications customers of Subtenant
("Customers") in order for such Customers to interconnect with Subtenant's
facilities. Sublandlord agrees that no consent shall be required for any
license agreement or "colocation agreement" between Subtenant and any such
Customer for the purpose of permitting such a telecommunications connection, so
long as (i) such Customer agrees in writing to comply with all obligations of
Subtenant under this Sublease to the extent relating to the portion of the
Demised Premises in question and (ii) each such license or co-location agreement
is in writing and is consistent with the provisions of this Sublease.
21
<PAGE>
13.3 No Release of Subtenant. No transfer or subletting by Subtenant
-----------------------
shall relieve Subtenant of the obligations to be performed by Subtenant under
this Sublease, whether occurring before or after such consent, transfer or
subletting. The acceptance by Sublandlord of payment from any other person
shall not be deemed to be a waiver by Sublandlord of any provision of this
Sublease or to be a consent to any transfer or sublease, or to be a release of
Subtenant from any obligation under this Sublease. If this Sublease is assigned
or transferred, or if the Demised Premises or any part thereof are sublet or
occupied by any person other than Subtenant, Sublandlord may, after default by
Subtenant, collect the rent from any such transferee, subtenant or occupant and
apply the net amount collected to the rent reserved herein, and no such action
by Sublandlord shall be deemed a consent to such transfer, sublease or
occupancy.
13.4 Assumption of Obligations. Each transferee of Subtenant shall assume
-------------------------
in writing all applicable obligations of Subtenant under this Sublease and shall
be and remain liable jointly and severally with Subtenant for the payment of the
rent and the performance of all the terms, covenants, conditions and agreements
herein contained on Subtenant's part to be performed for the Term for that
portion of the Demised Premises to be sublet or assigned by Subtenant. No
transfer shall be binding on Sublandlord unless the transferee or Subtenant
delivers to Sublandlord a counterpart of the instrument of transfer in
recordable form which contains a covenant of assumption by the transferee
reasonably satisfactory in substance and form to Sublandlord, consistent with
the requirements of this paragraph. The failure or refusal of the transferee to
execute such instrument of assumption shall not release or discharge the
transferee from its liability to Sublandlord hereunder. Sublandlord shall have
no obligation whatsoever to perform any duty to or respond to any request from
any Subtenant, it being the obligation of Subtenant to administer the terms of
its subleases.
13.5 Involuntary Assignment. No interest of Subtenant in this Sublease
----------------------
shall be assignable by operation of law, including, without limitation, the
transfer of this Sublease by testacy or intestacy. Each of the following acts
shall be considered an involuntary assignment: (a) if Subtenant is or becomes
bankrupt or insolvent, makes an assignment for the benefit of creditors, or if a
proceeding under the Bankruptcy Act is instituted in which Subtenant is the
"debtor"; (b) if a writ of attachment or execution is levied on this Sublease;
and (c) if, in any proceeding or action to which Subtenant is a party, a
receiver is appointed with authority to take possession of the Demised Premises.
An involuntary assignment shall constitute an incurable default by Subtenant and
Sublandlord shall have the right to elect to terminate this Sublease, in which
case this Sublease shall not be treated as an asset of Subtenant.
13.6 Deemed Transfers. If Subtenant is a corporation, company or other
----------------
legal entity or is an unincorporated association or partnership, the transfer,
assignment or hypothecation of any stock or interest in such corporation,
association or partnership in the aggregate from the date of execution of this
Sublease in excess of fifty percent (50%) shall be deemed an assignment or
transfer within the meaning and provisions of this Paragraph.
13.7 Assignment of Sublease Rents. Subtenant immediately and irrevocably
----------------------------
assigns to Sublandlord all rent from any subletting of all or any part of the
Demised Premises, and Sublandlord, as assignee and as attorney-in-fact for
Subtenant for purposes hereof, or a receiver for Subtenant appointed on
Sublandlord's application, may collect such rents and apply same toward
Subtenant's obligations under this Sublease; provided, however, that until the
occurrence of an event of default by Subtenant, Subtenant shall have the right
and license to collect such rents.
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14. DEFAULT.
-------
14.1 Subtenant's Default.
-------------------
(a) Definition of Default. The occurrence of any of the following
---------------------
shall constitute a default by Subtenant:
(1) Failure to pay Rent when due where such failure shall continue for
five (5) days after notice has been delivered to Subtenant (which notice shall
be in lieu of, and not in addition to, any notice required under Law to
terminate this Sublease or to declare a forfeiture thereof).
(2) Failure to perform any other provision of this Sublease if the
failure to perform is not cured within thirty (30) days after notice has been
delivered to Subtenant (which notice shall be in lieu of, and not in addition
to, any notice required under Law to terminate this Sublease or to declare a
forfeiture thereof). If the failure to perform cannot reasonably be cured
within thirty (30) days, Subtenant shall not be in default of this Sublease if
Subtenant commences to cure the failure to perform within five (5) days after
Sublandlord's notice and diligently and in good faith continues to pursue the
cure to completion.
(3) (i) The making by Subtenant of any general assignment for the
benefit of creditors, (ii) the filing by or against Subtenant of a petition to
have Subtenant adjudged a bankrupt or a petition for reorganization or
arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Subtenant, the same is dismissed within sixty (60) days),
(iii) the appointment of a trustee or receiver to take possession of
substantially all of Subtenant's assets located at the Demised Premises or of
Subtenant's interest in this Sublease, where possession is not restored to
Subtenant within sixty (60) days, or (iv) the attachment, execution or other
judicial seizure of substantially all of Subtenant's assets located at the
Demised Premises or of Subtenant's interest in this Sublease, where such seizure
is not discharged within sixty (60) days.
14.2 Sublandlord's Remedies for Subtenant's Default. Sublandlord shall
----------------------------------------------
have the following remedies if Subtenant commits a default. These remedies are
not exclusive and are cumulative and in addition to any remedies now or later
allowed by Law.
(a) Sublandlord can continue this Sublease in full force and effect,
and the Sublease will continue in effect as long as Sublandlord does not
terminate Subtenant's right to possession, and Sublandlord shall have the right
to collect rent when due, all in accordance with Washington Law. During the
period Subtenant is in default, Sublandlord can enter the Demised Premises and
relet them, or any part of them, to third parties for Subtenant's account.
Subtenant shall be obligated to promptly pay to Sublandlord all reasonable costs
Sublandlord incurs in reletting the Demised Premises. Reletting can be for a
period shorter or longer than the remaining term of this Sublease. Subtenant
shall pay to Sublandlord the rent due under this Sublease on the dates the rent
is due, less the rent Sublandlord receives from any reletting. No act by
Sublandlord allowed by this paragraph shall terminate this Sublease unless
Sublandlord notifies Subtenant in writing that Sublandlord elects to terminate
this Sublease. Sublandlord may from time to time sublet the Demised Premises or
any part thereof for such term or terms (which may extend beyond the Term of
this Sublease) and at such rent and such other terms as Sublandlord in its sole
discretion may
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deem advisable, with the right to make alterations and repairs to the Demised
Premises. Upon each subletting, Subtenant shall be immediately liable to pay to
Sublandlord, in addition to indebtedness other than rent due hereunder, for the
cost of such subletting and such alterations and repairs incurred by Sublandlord
in connection with such subletting. At the option of Sublandlord, rents received
from such subletting shall be applied first, to payment of any indebtedness
other than rent due hereunder, from Subtenant to Sublandlord; second to the
payment of any costs of such subletting and of such alterations and repairs;
third, to payment of rent due and unpaid hereunder; and the residue, if any,
shall be held by Sublandlord and applied in payment of future rent as the same
becomes due hereunder. If the amounts received from such subletting during that
month, as applied by Sublandlord as specified above, are less than the amounts
required to be paid during that month by Subtenant hereunder, Subtenant shall
pay any such deficiency to Sublandlord. Such deficiency shall be calculated and
paid monthly. Taking possession of the Demised Premises by Sublandlord shall not
be construed as an election on Sublandlord's part to terminate this Sublease
unless a written notice of such intention is given to Subtenant.
(b) Sublandlord can terminate Subtenant's right to possession of the
Demised Premises at any time. No act by Sublandlord other than giving written
notice to Subtenant shall terminate this Sublease. Acts of maintenance, efforts
to relet the Demised Premises, or the appointment of a receiver on Sublandlord's
initiative to protect Sublandlord's interest under this Sublease shall not
constitute a termination of Subtenant's right to possession. On termination,
Sublandlord has the right to recover from Subtenant all amounts permitted by
law, including without limitation:
(1) The worth, at the time of the award, of the unpaid rent that
had been earned at the time of termination of this Sublease.
(2) The worth, at the time of the award, of the amount by which
the unpaid rent that would have been earned after the date of termination of
this Sublease until the time of award exceeds the amount of the loss of rent
that Subtenant proves could have been reasonably avoided;
(3) The worth, at the time of the award, of the amount by which
the unpaid rent for the balance of the Term after the time of award exceeds the
amount of the loss of rent that Subtenant proves could have been reasonably
avoided, and
(4) Any other amount, including reasonable legal fees and court
costs, necessary to compensate Sublandlord for all detriment proximately caused
by Subtenant's default.
"The worth, at the time of the award," as referred to in subparagraph (3)
of this subparagraph, is to be computed by discounting the amount at the
discount rate of the Wells Fargo Bank N.A. (or its successor) at the time of the
award, plus two percent (2%).
(c) Sublandlord, at any time after Subtenant commits a default, can
cure the default at Subtenant's cost after providing Subtenant with prior
written notice of its intent to do so, except in the event of an emergency, in
which event no prior notice shall be required. If Sublandlord at any time, by
reason of Subtenant's default, pays a sum or does any act that requires the
payment of any sum, the sum paid by Sublandlord shall be due immediately from
Subtenant to Sublandlord at the time the sum is paid, and if paid at a later
date shall bear interest at the Overdue Rate from the
24
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date the sum is paid by Sublandlord until Sublandlord is reimbursed by
Subtenant. The sum, together with interest on it, shall be additional rent.
(d) All reasonable costs and expenses (including reasonable attorneys'
fees) incurred by Sublandlord in collecting rent or enforcing Subtenant's
obligations under the Sublease shall be paid by Subtenant to Sublandlord upon
demand.
14.3 Interest on Unpaid Rent. Rent not paid when due shall bear simple
-----------------------
interest at the Overdue Rate from the date due until paid.
14.4 Late Charges. Subtenant acknowledges that late payment by Subtenant
------------
to Sublandlord of any amount due under this Sublease or the delivery of a check
by Subtenant which is dishonored or returned by the bank upon which said check
is drawn will cause Sublandlord to incur costs not contemplated by this
Sublease, the exact amount of such costs being extremely difficult and
impracticable to fix. Such costs include, without limitation, processing and
accounting charges, and late charges that may be imposed on Sublandlord by the
terms of any encumbrance and note secured by any encumbrance covering the
Demised Premises. Therefore, if (a) any amount payable by Subtenant is not
received by Sublandlord within five (5) days after the due date thereof, or (b)
Subtenant delivers a check to Sublandlord which is dishonored or returned by the
bank upon which said check is drawn (with each event set forth in clauses (a)
and (b) being referred to herein as a "late payment"), Subtenant shall pay to
Sublandlord an additional sum of three percent (3%) of the overdue amount or the
amount of such dishonored or returned check, as the case may be (the "late
charge"). The parties agree that this charge represents a fair and reasonable
estimate of the costs that Sublandlord will incur by reason of such late payment
or delivery of such check by Subtenant. Acceptance of any such charge shall not
constitute a waiver of Subtenant's default with respect to the overdue or unpaid
amount, or prevent Sublandlord from exercising any of the other rights and
remedies available to Sublandlord. If Sublandlord prepares and serves any
notice on Subtenant to terminate this Sublease or to declare a forfeiture
thereof, Subtenant also shall pay to Sublandlord security for performance on
demand the reasonable cost of preparing and serving such notice.
14.5 Sublandlord's or Prime Landlord's Default. In the case of a monetary
-----------------------------------------
default by Sublandlord, Sublandlord shall have a period of ten (10) days after
receipt of written notice thereof from Subtenant to cure such monetary default.
In the case of a non-monetary default, Sublandlord shall commence promptly to
cure such default after receipt of written notice from Subtenant specifying the
nature of such default and shall complete such cure within thirty (30) days
thereafter, provided that if the nature of the non-monetary default is such that
it cannot be cured within the thirty (30) day period, Sublandlord shall have
such additional time as may be reasonably necessary to complete its performance
so long as Sublandlord has proceeded with diligence following receipt of
Subtenant's notice and is then proceeding with diligence to cure such default.
Whenever Subtenant is required to deliver notice to Sublandlord of Sublandlord's
default or contends that Prime Landlord is in default under the Prime Lease,
written notice shall also be delivered at the same time to Prime Landlord or the
holder of any Encumbrance, provided that Sublandlord has delivered prior notice
of the identity and address of such holder or lessor to Subtenant ("Mortgagee").
The Mortgagee shall have the same time periods within which to cure such
defaults after Mortagee's receipt of proper notice hereunder. In this
connection, any representative of the Mortgagee shall have the right to enter
upon the Demised Premises for the purpose of curing any such default.
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<PAGE>
15. LIMITATION OF LIABILITY.
-----------------------
Notwithstanding anything to the contrary in this Sublease, any judgment
obtained by Subtenant against Sublandlord shall be satisfied only out of
Sublandlord's interest in the Demised Premises, the Prime Lease, and any
sublease of the Prime Lease which shall in no event be less than Two Million
Dollars ($2,000,000). Neither Sublandlord nor any of its general or limited
partners, officers, directors, shareholders, members, interest holders or
beneficiaries shall have any personal liability for any matter in connection
with this Sublease or its obligations as Sublandlord of the Demised Premises.
Subtenant shall not institute, seek or enforce any personal or deficiency
judgment against Sublandlord or any of its general or limited partners,
officers, directors, shareholders, members, interest holders or beneficiaries
and none of their property, except the Sublandlord's right, title and interest
in the Prime Lease and any subleases of the Prime Lease and the rents receivable
by Sublandlord, shall be available to satisfy any judgment hereunder.
16. SUBLANDLORD'S ENTRY ON PREMISES.
-------------------------------
16.1 Right of Entry. Upon reasonable advance notice, Prime Landlord,
--------------
Sublandlord and Authorized Representatives of Prime Landlord or Sublandlord
shall have the right to enter the Demised Premises at all reasonable times
during Subtenant's normal business hours so long as Prime Landlord, Sublandlord
and any of their respective Authorized Representatives are accompanied by a
representative of Subtenant (and Subtenant agrees that it will cooperate in all
necessary aspects to provide such a representative for such purpose) for any of
the following purposes and so long as Sublandlord does not materially interfere
with the operation of Subtenant's business in the Demised Premises:
(a) To determine whether the Demised Premises are in good condition
and whether Subtenant is complying with its obligations under this Sublease;
(b) To do any necessary maintenance and to make any restoration to
the Demised Premises that Sublandlord has the right or obligation to perform;
and
(c) To serve, post, or keep posted any notices required or allowed
under the provisions of this Sublease.
16.2 Limited Liability for Entry. Sublandlord shall not be liable in any
---------------------------
manner for any inconvenience, disturbance, loss of business, nuisance, or other
damage arising out of Sublandlord's entry on the Demised Premises as provided in
this paragraph, except damage resulting from a breach of Sublandlord's Entry
Duties (as defined in this Paragraph), or from the negligence of Sublandlord or
its Authorized Representatives acting within the scope of their authority.
Subtenant shall not be entitled to an abatement or reduction of rent if
Sublandlord exercises any rights reserved in this paragraph. Sublandlord shall
reasonably conduct its activities in and about the Demised Premises as allowed
in this paragraph in a manner that will reasonably minimize the inconvenience,
annoyance, or disturbance to Subtenant ("Sublandlord's Entry Duties").
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<PAGE>
17. SUBORDINATION.
-------------
This Sublease is and shall be subordinate to any ground lease or
Encumbrance affecting the Demised Premises, provided that Sublessor shall obtain
from any existing or future ground lessor, mortgagee or beneficiary an agreement
in a form reasonably acceptable to Subtenant where such party agrees not to
disturb Subtenant's possession of the Demised Premises so long as Subtenant is
not in default under this Sublease after notice and beyond any applicable cure
period. Subtenant shall from time to time, on request from Sublandlord, execute
and deliver any reasonable documents or instruments that may be required by a
lender to effectuate any subordination. If Subtenant fails to execute and
deliver any such documents or instruments and such failure continues following
an additional written notice and cure period of ten (10) days, Subtenant
irrevocably constitutes and appoints Sublandlord as Subtenant's special
attorney-in-fact to execute and deliver any such documents or instruments.
Nothing herein shall be construed to waive any breach resulting from Subtenant's
failure to execute documents to effectuate or confirm such subordination.
18. WAIVER.
------
18.1 No Impairment of Rights. No delay, waiver or omission in the
-----------------------
exercise of any right or remedy of Sublandlord or Subtenant on any default by
either Sublandlord or Subtenant, shall impair such a right or remedy or be
construed as a waiver.
18.2 Acceptance of Rent. The receipt and acceptance by Sublandlord of
------------------
delinquent rent shall not constitute a waiver of any other default.
18.3 No Surrender. No act or conduct of Sublandlord, including, without
------------
limitation, the acceptance of the keys to the Demised Premises, shall constitute
an acceptance of the surrender of the Demised Premises by Subtenant before the
expiration of the Term. Only a written notice from Sublandlord to Subtenant
shall constitute acceptance of the surrender of the Demised Premises and
accomplish a termination of this Sublease.
18.4 No Waiver of Consent. Either party's consent to or approval of any
--------------------
act by the other party requiring consent or approval shall not be deemed to
waive or render unnecessary such party's consent to or approval of any
subsequent act by the other party.
18.5 Written Waiver. Any waiver by Sublandlord of any default must be in
--------------
writing and shall not be a waiver of any other default concerning the same or
any other provision of this Sublease.
19. SALE OR TRANSFER OF PREMISES.
----------------------------
If Sublandlord sells or transfers any of Sublandlord's right, title or
interest in or to the Demised Premises or the Prime Lease, on consummation of
the sale or transfer, Sublandlord shall be released from any liability
thereafter accruing under this Sublease if Sublandlord's successor has assumed
in writing, for the benefit of Subtenant, Sublandlord's obligations under this
Sublease, Subtenant is so notified of such sale or transfer and Sublandlord
delivers to Sublandlord's successor any funds in which Subtenant has an
interest.
20. SURRENDER OF PREMISES.
---------------------
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20.1 Condition. On expiration of the Term, Subtenant shall surrender to
---------
Sublandlord the Demised Premises and all Subtenant's Work and Alterations in
good condition and repair (except for ordinary wear and tear and damage and
destruction to the Demised Premises covered by Paragraph 12) except for
Alterations that Subtenant is obligated to remove under the provisions of
Paragraph 10.3. Subtenant shall remove all of Subtenant's Personal Property
(including, but not limited to, Subtenant's Trade Fixtures) within the above
stated time. Subtenant shall perform all restoration made necessary by the
removal of any Alterations, Subtenant's Personal Property before the expiration
or earlier termination of the Term.
20.2 Removal of Subtenant's Property. If Subtenant fails to remove all
-------------------------------
Alterations that Subtenant is obligated to remove and all Subtenant's Personal
Property and Subtenant's Trade Fixtures from the Demised Premises, Sublandlord
can elect, without waiving any rights or remedies Sublandlord has against
Subtenant for such default, after ten (10) days prior written notice to
Subtenant and opportunity to cure, to retain or dispose of in any manner such
Alterations, Subtenant's Personal Property or Subtenant's Trade Fixtures.
Subtenant waives all claims against Sublandlord for any damage to Subtenant
resulting from Sublandlord's retention or disposition of any such Alterations or
Subtenant's Personal Property or Subtenant's Trade Fixtures. Subtenant shall be
liable to Sublandlord for Sublandlord's costs for storing, removing, and
disposing of any such Alterations or Subtenant's Personal Property or
Subtenant's Trade Fixtures.
20.3 Damages in Case of Delay. If Subtenant fails to surrender the
------------------------
Demised Premises to Sublandlord on expiration or earlier termination of the Term
as required by this paragraph, in addition to the provisions of Paragraph 21,
Subtenant shall indemnify, protect, defend and hold Sublandlord harmless from
all claims, demands, damages, losses, liabilities, costs, fees and expenses
including reasonable attorneys' fees resulting from Subtenant's failure to
surrender the Demised Premises, including, without limitation, claims made by a
succeeding tenant from Subtenant's failure to timely surrender the Demised
Premises.
21. HOLDING OVER.
------------
Article 9 of the Prime Lease is incorporated herein and made a part of this
Sublease.
22. ESTOPPEL CERTIFICATES; FINANCIALS.
---------------------------------
22.1 Delivery by Subtenant. Subtenant shall at any time and from time to
---------------------
time upon not less than twenty (20) days' prior written notice from Sublandlord
execute, acknowledge and deliver to Sublandlord a statement in writing (referred
to herein as an "Estoppel Certificate") (i) certifying that this Sublease is
unmodified and in full force and effect (or, if modified, stating the nature of
such modification and certifying that this Sublease, as so modified, is in full
force and effect) and the dates to which the Minimum Monthly Rent and other
charges are paid in advance, if any, (ii) acknowledging that there are not, to
Subtenant's knowledge, any uncured defaults on the part of Sublandlord
hereunder, or specifying such defaults if any are claimed, and (iii) covering
such other matters as may be reasonably requested by Sublandlord or by any
present or prospective Sublandlord's Mortgagee. Any such statement may be
relied upon by any prospective purchaser, ground lessor or encumbrancer of the
Demised Premises or of all or any portion of the real property of which the
Demised Premises are a part.
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22.2 Failure to Deliver. Subtenant's failure to deliver such statement
------------------
within such time shall constitute a material breach of this Sublease and, if not
cured within an additional ten (10) days' written notice from Sublandlord, shall
be conclusive upon Subtenant (i) that this Sublease is in full force and effect,
without modification except as may be represented by Sublandlord, (ii) that
there are no uncured defaults in Sublandlord's performance, (iii) that not more
than one month's Minimum Monthly Rent has been paid in advance, and (iv) as to
such other matters as may be specified in the requested statement.
22.3 Subtenant's Financial Data. Within fifteen (15) days after
--------------------------
Sublandlord's written request, but not more than once in any calendar year,
Subtenant shall furnish Sublandlord with the following documents: (a) financial
statements including, but not limited to, balance sheets, profit and loss
statements, income statements and changes to financial condition, which reflect
Subtenant's current financial condition and (b) written evidence of ownership of
controlling stock interest if Subtenant is a corporation. Any information
obtained from Subtenant's financial statements shall be confidential and shall
not be disclosed to any third party, other than to carry out the purposes of
this Sublease; provided, however, Sublandlord shall incur no liability for the
inadvertent disclosure of any such information, and Sublandlord may divulge the
contents of any financial statements of Subtenant in connection with any
financing arrangement or assignment of Sublandlord's interest in the Demised
Premises or in connection with any administrative or judicial proceedings or
otherwise required by Law.
23. TELECOMMUNICATIONS CONDUIT.
--------------------------
Subtenant shall have the right to install multiple telecommunications
entrances to the Building, but in no event more than four (4) entrances. In the
event that such construction requires the removal of any sidewalk or curbing,
Subtenant shall promptly replace same and return such sidewalk or curbing to the
condition which it existed prior to removal of same. During such removal and
replacement, Subtenant shall use its best efforts to mitigate disruption to
other occupants of the Building and to third parties with rights to use such
areas. Prior to the commencement of such work, as a part of the plans which
shall be submitted for Sublandlord's review and written approval of the
installation of the dual entrances, Subtenant shall submit to Sublandlord a plan
which will so mitigate any disruption described above.
Subtenant shall also have the right to install new power and data conduit
in the Building, as well as any additional conduit required for Subtenant's
installation of its emergency backup generator, HVAC piping or antennas to or
from the Demised Premises. Subtenant shall comply with all scheduling and other
requirements of Prime Landlord and Sublandlord relating to the installation and
maintenance of all conduit, cable and related apparatus installed by Subtenant.
Further, all concrete coring, drilling, saw cutting and other construction
activities that in Sublandlord's judgment may interfere with other tenants of
the Building shall be performed during non-business hours, and shall be
supervised and approved by Sublandlord and its structural engineer at
Subtenant's expense. Subtenant agrees that it will respond to and make
resaonable efforts (in the event service to only the Demised Premises is
affected and to make every effort (in the event that an other tenants or
occupants of the Building are affected) to repair, within 24 hours after notice
to Subtenant, any and all damaged fixtures, equipment, mechanical and structural
components and any other elements of Subtenant's facilities, or the Demised
Premises or the Building, which are damaged as a result of the installation,
operation, maintenance or use of Subtenant's facilities. Subtenant agrees that
all materials used in connection with the installation of Subtenant's facilities
shall be of good quality and condition, shall be suitable for the intended use
and compatible with all existing fixtures and
29
<PAGE>
mechanical and structural components of the Building, will not interfere with or
disrupt any existing utility or other telecommunications equipment or services
in the Building and will be modified as necessary during the Term if reasonably
requested by Sublandlord in order to attain the standards set forth in this
Paragraph.
All cable and conduit installed by Subtenant shall become the property of
Sublandlord upon the expiration or earlier termination of the Term. However,
Sublandlord reserves the right, in its sole discretion, to require Subtenant to
remove any conduit, cable or related equipment upon the expiration or earlier
termination of the Term. In such event, same shall be removed in accordance
with the terms of Paragraph 20 of this Sublease. All installations under this
Paragraph 23 shall be subject to the requirements set forth hereinafter, as well
as the terms and provisions of Exhibit G attached hereto.
Subtenant shall at all times during the Term maintain the areas of the
Building impacted by the equipment necessary for installation of the dual
entrances in a neat and orderly condition, and shall maintain all and every
aspect of the equipment in strict compliance with all applicable Laws, as well
as with all of Sublandlord's and Prime Landlord's rules and regulations, access
restrictions and security procedures and shall promptly repair any and all
damage to the Building as a result of the installation, operation, maintenance,
modification or use of the equipment. Subtenant shall use its best efforts to
insure that no leaks or other damage shall occur to the Building because of the
installation or operation of the equipment, but in any event, Subtenant shall
repair and replace any damage to the Building due to Subtenant's installation or
maintenance of the equipment during the Term. Prior to any modification or
alteration of any of the equipment, including, but not limited to, additions
thereto, Subtenant shall submit plans and specifications for the construction of
same, as well as the method of attachment to the Building. Subtenant shall also
pay Sublandlord for any and all utility expenses incurred to install, operate,
maintain or repair the equipment during the Term.
Sublandlord shall not be liable to Subtenant or Subtenant's employees,
agents or visitors, or to any other person, for any injury to person or damage
to property resulting from any of the equipment or any work done in connection
with the equipment, and Subtenant agrees to indemnify and hold Sublandlord
harmless from any loss, expense or claim arising out of any such damage or
injury caused by Subtenant, its employees, agents or contractors in connection
with the equipment, including, but not limited to, claims for (i) damage to the
roof of the Building caused by the installation, maintenance, repair or
operation of the equipment; (ii) property damage to any object damaged by the
equipment becoming dislodged; (iii) bodily injury or death of persons harmed by
performing any work on or near the equipment or caused by the equipment becoming
dislodged. Subtenant shall also maintain, during the period of any construction,
alteration or modification of the equipment, builder's risk and worker's
compensation insurance in accordance with the requirements set forth in Exhibit
G attached hereto. Sublandlord shall in no way be responsible for the
maintenance, repair or replacement of the equipment, and further, Sublandlord
makes no representation as to the suitability of any area of the Building for
Subtenant's use of same as outlined in this Paragraph 23. Subtenant shall
maintain throughout the Term, at its expense, commercial general liability
insurance covering the equipment and all areas of the Building utilized in
connection therewith, in an amount not less than Two Million Dollars
($2,000,000) combined single limit per occurrence, personal injury and property
damage insurance with companies satisfactory to Sublandlord in accordance with
each and all of the terms of Paragraph 11 of this Sublease, and shall submit
such certificates of insurance to Sublandlord prior to its installation of the
equipment.
The terms of this Paragraph 23 are personal and unique to Subtenant and
shall not be assignable to any assignee or sublessee of Subtenant which would
require Sublandlord's consent in
30
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accordance with the provisions of Paragraph 13 of this Sublease.
24. HEATING, VENTILATING AND AIR CONDITIONING ("HVAC").
--------------------------------------------------
Subtenant shall have the right to utilize the water tower for the Building
to obtain chilled water to provide up to 100 tons of cooling for the Demised
Premises, in addition to the existing HVAC systems in the Demised Premises, for
Subtenant's conduit and cable switching equipment, as well as an HVAC system
sufficient to meet Subtenant's established cooling and heating requirements
for the Demised Premises. Subtenant shall also install all ductwork and related
system equipment necessary for the operation of such HVAC systems. Subtenant
may also install drains for such system, and shall have the right to remove or
cap any existing HVAC system in the Demised Premises, so long as same does not
disrupt the systems serving the other tenants and occupants of the Building, and
provided Sublandlord and Prime Landlord approve the manner in which such
modifications to existing systems are made. No such installations shall be made
unless Sublandlord and Subtenant can mutually agree on a location for the HVAC
systems and the vents and related equipment for same. The mutual agreement of
the parties shall be based upon space availability in the Building and the
Demised Premises, as well as the location of existing ductwork, the dimension,
weight and aesthetics of the planned installations and the level of noise
created by the proposed equipment and related installations. Subtenant shall
submit its plans to both Sublandlord and Prime Landlord for their approval.
All equipment and related installation shall comply with the terms and
provisions of Paragraph 23 of this Sublease, as well as Exhibit G, and with
current industry codes and requirements. In addition, all HVAC equipment and
related installations by Subtenant shall not exceed the structural load capacity
for the roof (in the event any of such equipment is installed on the roof) or
any other structural portions of the Building, nor will the HVAC and related
equipment (including vents) impair the HVAC and vent systems of other tenants of
the Building. All equipment installed by Subtenant under this Paragraph 27
shall remain the property of Sublandlord at the expiration or earlier
termination of the Term. However, Sublandlord reserves the right, in its sole
discretion, to require Subtenant to remove any conduit, cable or related
equipment upon the expiration or earlier termination of the Term. Further,
Subtenant shall be responsible to repair, replace and maintain the HVAC systems
and related apparatus installed by or on behalf of Subtenant throughout the
Term, and shall contract with a licensed professional contractor (which contract
shall be kept in full force and effect throughout the Term) for the inspection,
cleaning and maintenance of the HVAC systems, on no less than a semi-annual
basis. Subtenant shall also ensure that the HVAC systems are in good working
order upon its surrender of the Demised Premises to Sublandlord at the
expiration or earlier termination of the Term.
The location of the HVAC equipment shall be as specified on the plans and
specifications for same approved in writing by Sublandlord and Prime Landlord.
31
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25. ELECTRICAL SYSTEMS.
------------------
Subtenant shall have the right, at its sole cost and expense, to upgrade
the current electrical capacity for the Demised Premises for its own use and for
its other installations in the Building, to provide for electrical capacity of
an amount which shall not interrupt the electrical service to the remaining
portions of the Building for service to other tenants and occupants of the
Building, nor the operation of the Building systems and equipment. Sublandlord
acknowledges that the electrical capacity available at the Demised Premises is
currently no less than 1200 AMP @ 480 volts. Subtenant shall in no event disturb
or impair the electrical service or equipment serving other tenants of the
Building. Subtenant shall place such equipment in an area to be designated by
Sublandlord. All such installations shall be in compliance with the terms and
provisions of Paragraph 23 of this Sublease as well as Exhibit G, including, but
not limited to, Sublandlord's prior written approval of Subtenant's plans and
specifications. In the event such additional electrical capacity shall be
insufficient to serve Subtenant's electrical needs, Subtenant may, at its
expense, with Sublandlord's prior approval, apply directly to the public utility
serving the Demised Premises for such additional electrical capacity.
Subtenant may also install, at its sole cost and expense, an emergency
generator system and diesel fuel tank (including necessary conduit, wiring and
cabling) to supply a minimum of 500 KW of electrical service to the Demised
Premises to provide for continuous uninterrupted telecommunications services, in
a location in the Building mutually acceptable to Sublandlord and Subtenant
either (i) adjacent to the loading dock area or (ii) in the lowest level of the
Building or (iii) on the rooftop of the Building, so long as there is available
space for such equipment as set forth in Article 24 above. Any installations on
the rooftop which require structural reinforcement of the roof to support
Subtenant's equipment shall be performed by Subtenant at its sole cost and
expense. Subtenant may also install an electrical grounding system for its
equipment. All such installations by Subtenant under this subparagraph shall be
in compliance with the terms of Paragraph 23 of this Sublease as well as Exhibit
G attached hereto.
The use of the generator shall be exclusive to Subtenant. Further,
Subtenant shall have the right to conduct periodic tests of the emergency power
generator following the business hours of all tenants of the Building. No such
testing shall be performed until Sublandlord and Prime Landlord have each
received reasonable advance notice of same, and such tests shall in no event
interfere in any way with the operations of any other tenant or occupant of the
Building, or the Building systems and equipment. In no event shall such tests be
conducted more often than once per week. Sublandlord shall use all reasonable
efforts to cooperate with Subtenant to establish times for such testing which
are mutually acceptable to all parties. Sublandlord shall provide information to
Subtenant, upon receipt of Subtenant's written request therefor, as to the
operating hours of other tenants of the Building which are subtenants of
Sublandlord in connection with the Prime Lease.
26. LIFE SAFETY SYSTEMS.
-------------------
Sublandlord warrants that the Building is currently equipped with a fire
protection system with life safety features which meet current applicable
building code requirements as established by the governmental authority which
has jurisdiction of the Building. Subtenant shall have the right to install an
FM200 fire suppression system (or substantially similar system) for the Demised
Premises, which system shall be separate and in addition to the existing fire
suppression system for the Building. Subtenant shall also, at its sole cost and
expense, connect its fire suppression system to that of the Building, if such
systems are compatible and susceptible to connection. Subtenant may
32
<PAGE>
also modify the Building's existing sprinkler system to provide a dry pipe
double precaution system for the Demised Premises. Such systems shall comply
with all Laws, and the installation of same shall comply with the terms and
provisions of Paragraph 23 of this Sublease as well as Exhibit G attached
hereto.
27. SATELLITE DISH.
--------------
Subtenant may install, at its sole cost and expense, a satellite dish/GPS
receiver on the roof of the Building, so long as: (i) Subtenant obtains the
prior written approval of Sublandlord and Prime Landlord of the plans and
specifications for same (including, but not limited to, the location of same)
and (ii) there is available space on the roof (as set forth hereinabove in
Section 24), in a location which can support such equipment. All such
installations by Subtenant shall be in compliance with the terms of Paragraph 23
of this Sublease as well as Exhibit G attached hereto.
28. DEFINITIONS. The definitions contained in this Sublease shall be used to
-----------
interpret this Sublease. As used herein, the following words and phrases shall
have the following meanings:
28.1 Alteration. The term "Alteration" shall mean any addition or change
----------
to, or modification of, the Demised Premises made by Subtenant, including,
without limitation, fixtures (but excluding Subtenant's Trade Fixtures) and
Subtenant's Work as such terms are defined herein.
28.2 Authorized Representative. The term "Authorized Representative"
-------------------------
shall mean the Prime Landlord or its successors or assigns any director,
officer, agent, partner, employee, or independent contractor of the specified
party or the Prime Landlord or its successors or assigns..
28.3 Building. The term "Building" shall mean the leased building as
--------
defined or referenced under the Prime Lease.
28.4 Claims. The term "Claims" shall mean all liabilities, obligations,
------
claims, damages, losses, penalties, causes of action, judgments, costs and
expenses (including without limitation, reasonable attorneys' fees and
expenses).
28.5 Encumbrance. The term "Encumbrance" shall mean any deed of trust,
------------
mortgage, or other written security device or agreement affecting the Building,
the Demised Premises, the Prime Lease or this Sublease, and the note or other
obligation secured by it, that constitutes security for the payment of a debt or
performance of an obligation. "Sublandlord's Mortgagee" shall mean the holder
of any such security interest that encumbers the interest of Sublandlord under
the Prime Lease and/or this Sublease.
28.6 Floor Area. The term "Floor Area" shall mean all areas designated by
----------
Sublandlord for the exclusive use of a Subtenant (other than the Common Areas)
measured from the exterior surface of exterior walls (and extensions, in the
case of openings) and to the center of demising walls, and shall include all
restrooms, warehouse or storage areas, clerical or office areas, employee areas
and similar areas.
28.7 Force Majeure. The term "Force Majeure" shall mean any prevention,
-------------
delay or stoppage due to strikes, lockouts, labor disputes, acts of God,
inability to obtain labor or materials
33
<PAGE>
or reasonable substitutes therefor, governmental restrictions, governmental
regulations, governmental controls, judicial orders, enemy or hostile
governmental action, civil commotion, fire or other casualty, and other causes
(financial inability or operating performance excluded) beyond the reasonable
control of the party obligated to perform.
28.8 Hazardous Substance. The term "Hazardous Substance" shall mean any
-------------------
product, substance, chemical, material or waste whose presence, nature, quantity
and/or intensity of existence, use, manufacture, disposal, transportation,
spill, release or effect, either by itself or in combination with other
materials expected to be on the Demised Premises or the Building, is either: (i)
regulated or monitored by any governmental authority, or (ii) a basis for
liability of Sublandlord or Prime Landlord to any governmental agency or third
party under any applicable statute or common law theory. Hazardous Substance
shall include, but not be limited to, hydrocarbons, petroleum, gasoline, crude
oil or any products, by-products or fractions thereof.
28.9 Law(s). The term "Law(s)" shall mean any judicial decision, statute,
------
constitution, ordinance, resolution, regulation, rule, administrative order, or
other requirement of any municipal, county, state, federal, or other government
agency or authority having jurisdiction over the parties or the Demised
Premises, or both, in effect either at the time of execution of this Sublease or
at any time during the Term, including, without limitation, any regulation or
order of a quasi-official entity or body (e.g., board of fire examiners or
public utilities).
28.10 Lease Year. The term "Lease Year" shall mean each period of twelve
----------
(12) consecutive calendar months beginning on the Commencement Date if such date
occurs on the first day of the month; if not, then on the first day of the month
next succeeding the month in which the Term begins. Subsequent Lease Years
shall run consecutively, each such Lease Year beginning on the first day of the
month next succeeding the last month of the previous Lease Year. Rent and/or
other matters which are computed with reference to a Lease Year shall be due and
ratably adjusted, on a per diem basis, for any period prior to the first Lease
Year and within the Term.
28.11 Overdue Rate. The term "Overdue Rate" shall mean the lesser of (i)
------------
the maximum rate permitted by Law or (ii) the prime rate of Wells Fargo Bank,
N.A. (or its successor) to responsible and substantial borrowers, in effect from
time to time, plus four percent (4%).
28.12 Rent. The term "Rent" shall mean Minimum Monthly Rent and all other
----
sums payable by Subtenant to Sublandlord under this Sublease.
28.13 Reportable Use. The term "Reportable Use" shall mean (i) the
--------------
installation or use of any above or below ground storage tank, (ii) the
generation, possession, storage, use, transportation, or disposal of a Hazardous
Substance that requires a permit from, or with respect to which a report,
notice, registration or business plan is required to be filed with, any
governmental authority. Reportable Use shall also include Subtenant's being
responsible for the presence in, on or about the Demised Premises of a Hazardous
Substance with respect to which any applicable Law requires that a notice be
given to persons entering or occupying the Demised Premises.
28.14 Subtenant's Work. The term "Subtenant's Work" shall mean any
----------------
addition to or modification of the Demised Premises made by Subtenant pursuant
to, and as more particularly defined in, Exhibit F.
34
<PAGE>
28.15 Subtenant's Personal Property. The term "Subtenant's Personal
-----------------------------
Property" shall mean Subtenant's equipment, furniture, merchandise, and moveable
property placed in the Demised Premises by Subtenant, including Subtenant's
Trade Fixtures, as defined herein.
28.16 Subtenant's Trade Fixtures. The term "Subtenant's Trade Fixtures"
--------------------------
shall mean any property installed in or on the Demised Premises by Subtenant for
purpose of trade, manufacture, ornament or related use, provided the same may be
removed without material damage to the Demised Premises.
29. MISCELLANEOUS.
-------------
29.1 Time of Essence. Except as to Sublandlord's delivery to Subtenant
---------------
of possession of the Demised Premises, time is of the essence of each provision
of this Sublease in which time is an element.
29.2 Consent. Unless otherwise specified in this Sublease, whenever
-------
consent or approval of either party is required, that party shall not
unreasonably withhold such consent or approval.
29.3 Corporate Authority. Subtenant shall arrange for certification by
-------------------
its Secretary as to the authority of the officer of Subtenant executing this
Sublease to so bind Subtenant.
29.4 Successors. Subject to Paragraph 13 hereof, this Sublease shall be
----------
binding on and inure to the benefit of the parties and their successors and
assigns.
29.5 Payments. Rent and all other sums payable under this Sublease must
--------
be paid in lawful money of the United States of America. All sums payable to
Sublandlord under this Sublease other than Minimum Monthly Rent and Percentage
Rent shall be deemed to be additional rent, and Sublandlord shall have the same
remedies against Subtenant for the failure to pay such sums when and as due, as
Sublandlord has for Subtenant's failure to pay Minimum Monthly Rent or
Percentage Rent.
29.6 Incorporation by Reference. All exhibits referred to are attached
--------------------------
to this Sublease and incorporated by reference.
29.7 No Merger. No merger shall occur as a result of one entity holding
---------
or acquiring the right, title and interest of the Prime Landlord under the Prime
Lease and the right, title and interest of the Sublandlord hereunder and/or the
Prime Tenant under the Prime Lease unless such party consents to a merger in
writing.
29.8 Governing Law. This Sublease shall be construed and interpreted in
-------------
accordance with the laws of the State of Washington.
29.9 Severability. The unenforceability, invalidity or illegality of any
------------
provision of this Sublease shall not render the other provisions unenforceable,
invalid, or illegal.
35
<PAGE>
29.10 Modification Only by Writing. This Sublease contains the entire
----------------------------
agreement of the parties with respect to the subject matter contained herein and
cannot be amended or modified except by a written agreement.
29.11 Attorneys' Fees. Article 33 of the Prime Lease is incorporated
---------------
herein and made a part of this Sublease.
29.12 Notices. Any notice, demand, request, consent, approval, or
-------
communication that either party desires or is required to give to the other
party or any other person shall be in writing and either served personally or
sent by prepaid, certified mail or by a reputable national overnight courier
service such as Federal Express. Any notice, demand, request, consent, approval
or communication that either party desires or is required to give to the other
party shall be addressed to the other party at the address set forth in the
Fundamental Lease Provisions. Either party may change its address by notifying
the other party of the change of address in writing. Notice shall be deemed
communicated within forty-eight (48) hours from the time of mailing if mailed as
provided in this paragraph.
29.13 Brokers. Sublandlord and Subtenant represent and warrant to the
-------
other that neither party has had any dealings with any real estate broker or
agent in connection with the negotiation of this Sublease, other than Grubb &
Ellis ("Subtenant's Broker"). Sublandlord has agreed to pay brokerage
commissions to Subtenant's Broker in accordance with the terms of a separate
agreement. Subtenant and Sublandlord shall each defend, indemnify and hold the
other harmless from and against all claims, demands, actions, causes of action,
liability and expense (including attorneys' fees) arising from any breach of the
warranty specified in this paragraph.
29.14 Recording. Subtenant shall not record this Sublease or a memorandum
---------
hereof without the prior written consent of Sublandlord, which Sublandlord may
withhold in its sole discretion. Subtenant agrees to execute and acknowledge
the Memorandum of Sublease attached as Exhibit H, which Sublandlord shall
record.
29.15 Survival of Subtenant's Obligations. All of Subtenant's
-----------------------------------
indemnities, waivers, assumptions of liability, duties and obligations hereunder
shall survive the expiration or other termination of this Sublease, whether by
expiration of time, operation of law or otherwise, to the extent required for
the full observances and performance thereof.
29.16 Removal of Equipment. Subtenant shall have the right, throughout
--------------------
the Term, to remove any or all of its equipment from the Demised Premises,
including, but not limited to, generators, batteries and UPS systems, so long as
Subtenant returns portions of the affected area(s) of the Demised Premises or
the Building to the condition which it existed prior to Subtenant's installation
of the equipment removed.
29.17 Access to Demised Premises. Subtenant shall have access to the
--------------------------
Common Areas and to the Demised Premises 24 hours per day, seven days per week.
Subtenant shall adhere to all of Sublandlord's and Prime Landlord's security
requirements at all times in its entry to and occupancy of the Building,
provided that Subtenant has been notified of such requirements.
29.18 Construction of Window Coverings. Subtenant shall have the right to
--------------------------------
construct walls or such other coverings over the interior of some or all of the
windows of the Demised Premises as
36
<PAGE>
may be necessary for the operation of Subtenant's business in therein, so long
as Subtenant's modifications shall be in keeping with the historical status
designation of the Building, the aesthetics of such modifications, any other
reasonable requirements of Sublandlord and Prime Landlord, and Subtenant's
compliance with all of the provisions of Paragraph 23 of this Sublease, as well
as Exhibit G attached hereto.
29.19 Fencing. Subtenant may construct fencing around the existing fixed
-------
tank and air cooled condensing units and transformer located on the roof of the
Building. Any such construction shall be in accordance with the provisions of
Paragraph 23 of this Sublease and Exhibit G attached hereto.
29.20 Costs of Compliance. Subtenant shall be responsible for all costs
-------------------
and expenses incurred by or on behalf of Sublandlord in connection with any
extraordinary compliance or retrofitting costs necessary in order for Subtenant
to perform any work in relation to Subtenant's rights under subparagraphs 29.16
and 29.18, and any work necessary to enable Subtenant to provide
telecommunications services to other tenants or occupants of the Building.
IN WITNESS WHEREOF, the parties hereto have executed this Sublease the day
and year first above written.
Sublandlord: Subtenant:
FADCO, LLC, FOCAL COMMUNICATIONS
a California limited liability company CORPORATION OF WASHINGTON,
a Delaware corporation
By: Alamo Group, III, LLC, By: /s/ Brian F. Addy
a California limited liability -------------------------
company, its member Name: Brian F Addy
-----------------------
Title: EVP
----------------------
By: /s/ Donald F. Gaube
------------------------
Donald F. Gaube
President
37
<PAGE>
ACKNOWLEDGMENT
(Subtenant)
STATE OF ILLINOIS )
-------------------------)
)SS
COUNTY OF COOK )
-------------------------)
I do hereby certify that on this 3rd day of August, 1998, before me,
Patricia Lee Metzger, a notary public in and for the County and State aforesaid,
and duly commissioned, personally appeared Brian F. Addy, known to me to be the
Executive Vice President of FOCAL COMMUNICATIONS CORPORATION OF WASHINGTON who,
being by me duly sworn, did depose and say that he resides in Illinois; that he
is the Executive Vice President of FOCAL COMMUNICATIONS CORPORATION OF
WASHINGTON, the corporation described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed to
said instrument is the corporate seal of said corporation; that, on behalf of
said corporation and by authority of its bylaws, he signed, sealed and delivered
said instrument for the uses and purposes therein set forth, as its and his free
and voluntary act; and that he signed his name thereto by like order. In Witness
Whereof, I have hereunto set my hand and affixed my official seal the day and
year in this certificate first above written.
/s/ Patricia Lee Metzger
--------------------------------
[SEAL OF NOTARY PUBLIC Notary Public
STATE OF ILLINOIS Name: Patricia Lee Metzger
APPEARS HERE] ---------------------------
Residing at: 13952 W. Dublin Dr
--------------------
Lockport,Il 60441
My Commission expires:
11-6-99
--------------------------------
<PAGE>
ACKNOWLEDGMENT
(Sublandlord)
STATE OF CALIFORNIA )
)
COUNTY OF CONTRA COSTA )
On August 7, 1998, before me, Joan Jess, personally appeared Donald F.
Gaube, personally known to me to be the person whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in
his/her/their authorized capacity, and that by his signature on the instrument
the person or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
Signature /s/ Joan Jess
------------------------ (Seal)
[SEAL OF NOTARY PUBLIC
CALIFORNIA, CONTRA COSTA
COUNTY APPEARS HERE]
<PAGE>
Exhibits
Exhibit Description Paragraph Page
- - ------- ----------- --------- ----
A Prime Lease A. 1
B Site Plan C. 1
C Permitted Exceptions 2.3(e) 7
D Nondisturbance Agreement 3.3(c) 9
Agreement
E Intentionally deleted
F Subtenant's Work 5.2 11
G Construction Provisions 10.3 17
H Memorandum of Sublease 29.14 36
<PAGE>
EXHIBIT A
Prime Lease
1. Lease Agreement dated June 15, 1976
2. Lease Amendment and Understanding dated April 20, 1981.
3. Lease Amendment dated January 29, 1982.
4. Lease Amendment Number 3 dated May __, 1982.
A-1
<PAGE>
LEASE
-----
THIS LEASE, made and entered into as of the 15th day of JUNE, 1976, is
between L.C.F. ASSOCIATES, a Washington limited partnership (hereinafter called
"Lessor"), and PAY 'N SAVE CORPORATION, a Washington corporation (hereinafter
called "Lessee").
1. Premises
--------
The Lessor does hereby lease to the Lessee, and the Lessee does hereby
lease from the Lessor, those certain premises situated in the City of Seattle,
County of King, State of Washington, described as follows:
The entire fourth (4th) floor and the entire third (3rd) floor of that
building located on the west side of Sixth Avenue between Pike Street and
Pine Street in said City, known as the Decatur Building, the popular
address of which is 1521 Sixth Avenue, which building is located on the
real property described in Exhibit A, attached hereto; together with the
right, subject to the terms and conditions herein contained to use an
entrance, lobby area and elevator system in connection therewith in the
southeastern corner of the Decatur Building as hereafter described,
together with ingress, egress and access for Lessee, its officers,
employees, agents, invitees and suppliers, both for the Decatur Building
and Lessee's operations in the adjoining M & A Building, in common with
other occupants of the Decatur Building, over, on and through all common
areas of said building, including stairways, passenger elevators at
locations other than the southeastern lobby, one freight elevator and
loading areas, ramps and docks, together with the exclusive right to use a
reasonable amount of area in the loading/dock area for the storage and
removal of trash and refuse, together with easements in the Decatur
Building for installation, use and repair of lines, conduits and other
paraphenalia necessary to supply to the leased premises power, water, heat,
telephone and other utility type services, and together with the right to
maintain on the southeastern entrance to the Decatur Building and in the
foyer area leading to the elevators connected therewith, reasonable signs
identifying Lessee's premises, provided the same comply with all applicable
governmental requirements and have been approved by Lessor's architect,
which approval shall be given unless based on reasonable professional
standards pertaining to the best use of the Decatur Building.
<PAGE>
2. Term
----
The term of this lease is ten years, commencing on the earlier of (i) that
date on which Lessee commences occupancy of the leased premises (occupancy for
purposes of renovation, storage and employee lunch room facilities excluded) or
(ii) on the first day of the month following ten months after the execution of
this lease or if this lease is executed on the first day of the month, the term
will commence ten months after execution. Lessee shall have possession of the
leased premises immediately upon the effective date of this lease for purposes
of renovating the leased premises, storage of goods and materials and the
operation of an employee lunch room.
3. Fixed Minimum Annual Rental
---------------------------
Lessee shall pay to Lessor at such place as Lessor from time to time
designates, an annual rental of $43,200, payable in twelve equal monthly
installments of $3,600. The fixed annual minimum rental shall be paid in advance
on or before the first day of each and every month. As used in this lease, the
term lease year shall mean each consecutive 12-month period which begins on the
anniversary date of the term and end 12 calendar months later. All rental
payments shall be made by checks payable to Lessor or any other entity
designated by Lessor and mailed to it at the address designated by Lessor, or by
check made payable to any other payee or mailed to any other address which
Lessor, or any successor in interest to Lessor, may designate in writing.
Lessee agrees, however, that when it commences use of part of the third
floor for its employee lunch room, Lessee shall pay rent on the space occupied
by the employee lunch room from the date of occupancy to the date of the term.
The rent, which Lessee agrees to pay monthly (prorated as to partial months),
shall be $3,600 per month multiplied by a fraction, the numerator of which is
the square footage of the lunch room and the denominator of which is the square
footage of the entire third and fourth floors.
No rent shall be due under the terms of this agreement until all
improvements to be completed by Lessor prior to the commencement of the lease
term have in fact been made in accordance with the standard and specifications
applicable to each improvement.
4. Taxes, Utility Charges, Etc.
----------------------------
Lessee agrees that it will pay all charges for electricity, water, gas,
telephone and all other utility services used on the leased premises. These
charges will be separately metered to Lessee's premises, whenever practical, and
as agreed upon between Lessor and Lessee. In any case where separate metering
cannot be practically accomplished, Lessee shall pay its share of the cost of
utilities based on actual use between the leased premises and the rest of the
-2-
<PAGE>
Decatur Building based on recommendations of the utility company supplying the
service involved, provided that if a reasonably accurate allocation cannot be
obtained from that source, the allocation shall be based on Lessee's pro rata
share as defined in this lease. For the first year of the term, Lessor may
apportion the cost of unmetered utilities based on Lessee's pro rata share as
hereafter defined, subject to adjustment at the end of said first year, based on
Lessee's actual share of the cost of the utility involved as determined above.
If unmetered utilities are paid on an estimated basis, they shall be adjusted
from time to time, at the request of either party, to Lessee's actual share as
determined above. Lessee further agrees to pay all taxes and assessments upon
the leased premises and all taxes and assessments attributable to the
Southeastern entrance, lobby and two elevators connected therewith (hereinafter
said area and the two elevators in connection therewith are referred to as the
"Southeastern Entrance Area"), which are payable during the original lease term
or any renewal thereof; provided, however, that, if other occupants of the
Decatur Building, including Lessor use on a regular basis the Southeastern
Entrance Area, then the Lessee and Lessor shall share on a pro rata basis the
taxes on the Southeastern Entrance Area. The term use shall not include said
other occupants' or Lessor's occasional infrequent use of the Southeastern
Entrance Area. The pro rata share of each shall be computed as follows: the
taxes attributable to the Southeastern Entrance Area shall be multiplied by a
fraction, the numerator of which is the square footage of floor area leased to
Lessee and the denominator of which is the total square footage of floor space
on the second, third and fourth floors of the Decatur Building. Lessee shall pay
an amount equal to the product of the multiplication. Lessor shall pay the
balance of the taxes which are attributable to taxes on the Southeastern
Entrance Area. The parties shall attempt to have the real property taxes and
assessments against the Decatur Building segregated as to the leased premises,
the Southeastern Entrance Area and the rest of the Decatur Building, with such
segregation to include attributing to the leased premises a pro rata share of
the taxes and assessments against the land, which pro rata share shall be
16.425% for each floor in the Decatur Building leased by Lessee (hereafter
Lessee's pro rata share). In the event segregation of taxes is not accomplished,
the taxes and assessments shall be prorated based on the computations, including
work papers, used by the King County Assessor in appraising the Decatur
Building, including land; provided, if such computations are not available or do
not indicate the Assessor's method of distinguishing between floors for
assessment purposes, Lessee shall pay a pro rata share is defined above. If at
any time during the lease term a tax or excise on rent payable hereunder is
levied or assessed by the United States or the State of Washington against the
Lessor, such tax or excise shall be considered taxes for purposes of this
paragraph. Excluded from the term "tax" are all general income taxes, gift
taxes, inheritance and/or estate taxes. Taxes assessed during the term, but
payable in whole or in installments after the termination of this lease, and
assessments which are covered by bond or payable in installments, shall be
adjusted and prorated and Lessor shall pay the prorated share thereof for the
period subsequent to the term, and Lessee shall pay the prorated share thereof
for the term of this lease. Taxes shall be prorated as of the termination of
this lease.
-3-
<PAGE>
5. Improvements by Lessee
----------------------
It is understood Lessee plans to "remodel" the premises and make
improvements pursuant to constructing office space therein, including work in
other areas of the Decatur Building necessary to permit Lessee's operation in
the leased premises and including changes necessary to permit free access
between the leased premises and areas occupied by Lessee in the adjoining M & A
Building; and in this connection, Lessor, who leases all or a portion of the
M & A Building to Lessee, consents to Lessee renovating the M & A Building to
provide for such access between the two buildings. Lessee may place or install
in the leased premises such fixtures and equipment as it shall deem desirable
for the conduct of business therein, and may paint the premises such colors as
it elects. Personal property, fixtures and equipment used in the conduct of
Lessee's business (as distinguished from fixtures and equipment used in
connection with the operation and maintenance of the building improvements)
placed by Lessee on or in said premises (even though placed prior to the
commencement of said term), shall not become a part of the realty, even if
nailed or screwed or otherwise fastened to the premises, but shall retain their
status as personalty and may be removed by Lessee at any time. In the event
Lessee does not remove its personal property and trade fixtures from the leased
premises within 45 days following the termination of the lease term and any
option, Lessor may treat said fixtures as abandoned, retain the fixtures as a
part of the leased premises, or have the personal property and fixtures removed
from the leased premises and charge Lessee with the expense of removing said
fixtures. Lessee may obliterate any signs or color effect installed by it. Any
damage caused the leased premises by the removal of Lessee's personal property
or fixtures shall be repaired by Lessee at its expense. Lessee agrees that it
will not permit any mechanic's, materialmen's, or other liens to stand against
the leased premises for work or materials furnished Lessee in connection with
any construction or improvements made by Lessee or Lessee's agents within the
premises.
6. Lessee's Assumption of Liability
--------------------------------
Lessee agrees that, during the original term of this lease and any
extension thereof, it will indemnify and save Lessor harmless from any and all
liability, damage expense, cause of action, suits, claims or judgments arising
from injury to person or property on the leased premises, except such as may
arise out of the willful or negligent act of Lessor, or Lessor's agents or
employees.
Lessee shall at all times provide a comprehensive general liability policy
containing an endorsement for public liability insurance covering the premises
in an amount not less than $300,000 in respect to the injury or death of a
single person, and to the limit of $1,000,000 in respect to
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<PAGE>
any one occurrence, and to a limit of not less than $50,000 in respect to
property damage, subject to such deductible insurance programs as Lessee's
financial condition reasonably justifies. Lessor shall be named as an additional
insured under the comprehensive general liability policy.
In addition to the comprehensive general liability policy referred to in
the preceding subparagraph of this paragraph, Lessee agrees to obtain and keep
in force an umbrella excess liability policy of insurance in an amount of
$1,000,000 in addition to the dollar amount of the endorsement in the
comprehensive general liability policy. In addition, Lessor at its option shall
be named as an additional insured under the umbrella excess liability policy
with any increased premiums resulting from Lessor being carried on said excess
liability policy being for the amount of Lessor.
In the event Tenant's net worth decreases from what it was at fiscal year
end January 31, 1976, all insurance policies required herein shall be reviewed
every three years and adjusted to reflect any changes in conditions thereof as
Lessor reasonably requires.
The insurance policies provided for in this paragraph shall be placed with
or written by responsible insurance companies of sound financial condition,
authorized by the appropriate governmental authorities to write insurance in the
State of Washington.
7. Repairs to Leased Premises
--------------------------
Lessee accepts the leased premises in the condition they are in on the date
this lease is signed, with such changes therein from the date of this lease to
the date the term commences as Lessee approves.
Lessee shall, during the term of this lease or any extension thereof, keep
the leased premises in good order, repair, and in a neat, clean condition,
except for reasonable wear and tear and casualty damage caused by fire,
earthquake, tornado, the elements, acts of God, or other casualty beyond the
control of Lessee to the leased premises during the lease term or any extension
thereof.
Lessor shall, during the full term of the lease and any renewals thereof,
keep the structural portions of the leased premises and the Decatur Building,
including, but not limited to, the roof, walls (except glass in the leased
premises), foundations, basic floors of the leased premises, the plumbing
connected therewith (except plumbing within the leased premises), and the common
areas of the building of which the leased
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<PAGE>
premises a part, including the Southeastern Entrance Area, in good condition and
repair. Provided, however, Lessee shall reimburse Lessor for expenses incurred
by Lessor in connection with the nonstructural maintenance and/or operation of
the Southeastern Entrance Area. In the event that all or a portion of the second
floor of the Decatur Building is occupied by a third party or occupied by Lessor
or its agents and said occupant or Lessor uses on a regular basis the
Southeastern Entrance Area, then the expenses incurred in connection with the
maintenance, repair and operation of the Southeastern Entrance Area shall be
prorated between Lessor and Lessee according to the formula set forth in
paragraph 4 hereof for the proration of taxes on the Southeastern Entrance Area.
Lessee agrees to give Lessor notice upon observing any defect requiring repair.
Should Lessor fail to make the repairs within a reasonable time following
receipt of the notice, Lessee may make such repairs and deduct the expenses of
making the same from the rent accruing. Lessee agrees, however, that before
commencing any repairs that could lead to a set off against rents, it will give
to the holder of the first mortgage or first deed of trust beneficiary
(hereafter Lessor's lender) at less: 30 days' advance written notice of such
repairs and shall afford the Lessor's lender an opportunity to commence the cure
of any default of Lessor in making such repairs and so long as the lender
commences said cure within said 30-day period and continues such cure, Lessee
will not commence said repairs nor set off against rents. If during the making
of any repairs or alterations herein required to be made by Lessor any part of
the premises in excess of 25% of the floor area of the leased premises are
uninhabitable for Lessee's purposes for more than three days, credit against
rent for the uninhabitable portion of the leased premises shall be given for the
period of time the spaces are uninhabitable based on the uninhabitable floor
space compared to the floor space of the leased premises.
Lessor may enter the leased premises at any reasonable time on
reasonable notice to Lessee (except that no notice need to be given in case of
emergency for purposes of inspection or making of such repairs as required of
Lessor in the lease herein on or about the premises as Lessor deems necessary or
desirable.
At the expiration of the lease term, or any extension or renewal
thereof, Lessee shall leave the leased premises in good condition, allowance
being made for ordinary wear and tear and damage by fire or by earthquake,
tornado, the elements, acts of God, or other casualty beyond the control of
Lessee excepted. Lessee shall not be required to restore the leased premises to
the condition in which the leased premises are in as of the commencement of the
term hereof; it being agreed that Lessor shall accept the leased premises with
such alterations, remodeling, additions or new construction as may have been
made pursuant to the authorization contained in this lease agreement.
8. Assignment
----------
Lessee shall not have the right to assign, let or sublet the whole or
any part of the Lessee's rights under this lease
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<PAGE>
without the consent of the Lessor, except that such consent shall not be
required for assignments or subleasing for uses comparable to Lessee's use of
the leased premises; provided, however, that in the event the Lessee assigns or
sublets any or all of its rights under this lease, it shall nevertheless remain
liable to Lessor for the full payment of rent according to the terms hereof.
9. Holding Over
------------
If Lessee holds over or remains in possession of the leased premises after
expiration of this lease or after any sooner termination thereof, without any
new lease of said premises being entered into between the parties hereto, or any
option hereinafter contained being exercised by written notice, such holding
over or continued possession shall, if rent is paid by Lessee, and accepted by
Lessor for or during any period of time Lessee holds over or remains in
possession, create a tenancy from month to month only at the last monthly rental
and upon the terms (other than length of term, or option for renewal, purchase
or cancellation) herein specified, which may at any time be terminated by either
party by 30 days' written notice given to the other party.
10. Quiet Possession
----------------
Lessor further covenants that it had full right, power and authority to
make this lease. Lessor covenants that so long as Lessor is the owner of the
leased premises, Lessee shall have quiet and peaceful possession thereof as
against any adverse claim of Lessor or any party claiming under Lessor.
11. Lessee's Default, Lessor's Default
-----------------------------------
If Lessee is in default in the payment of any sum or sums, whether stated
as fixed amount or as a variable amount or as a pro rata share, and whether
payable to Lessor, taxing authority, or other third person named herein, which
sum or sums is/are payable by Lessee hereunder, and if such default continues
for more than 20 days after written notice from Lessor, or if Lessee is in
default with respect to the performance of any other term, covenant or condition
required to be kept or performed by Lessee, and if such default continues for
more than 30 days after written notice from Lessor (or if such last mentioned
default is of such a nature that it cannot with due diligence be cured within
such 30-day period, then if Lessee fails to commence the curing thereof
forthwith after such notice and thereafter to complete the curing thereof with
due diligence): or if Lessee abandons the demised premises; or if Lessee
breaches any of its obligations hereunder which cannot be cured; then in any
event Lessor shall have the right, at Lessor's option and without limiting
Lessor in the exercise of any other remedy which Lessor may have hereunder or by
law or equity to which Lessor may resort, either cumulatively or in the
alternative, to the following;
<PAGE>
(a) To declare this lease at an end and upon giving notice of same,
Lessor may re-enter the demised premises and take exclusive possession thereof,
and thereupon Lessee shall have no further claim therein or hereunder.
(b) Without terminating this lease, Lessor has the option of continuing
this lease in effect for so long as Lessor does not terminate Lessor's right to
possession, and Lessor may enforce all of its rights and remedies under this
lease, including the right to recover rent as it becomes due under this lease.
(c) To cure any such default or any portion thereof for the account of and
at the expense of Lessee either concurrently with, or at any time before or
after, the exercise of any other remedy granted herein by law, in which event
all costs and expenses paid or incurred by Lessor in connection with the curing
of such default shall be due and payable by Lessee to Lessor. Lessor shall have
the right at any time subsequent to any such curing, to exercise any right or
remedy herein granted to Lessor which may have arisen by reason of the default
so cured.
Lessor may, at any time after breach of this lease by Lessee, relet
the demised premises and Lessor shall be entitled to the difference between the
rent received from the new lessee, less the expenses of reletting the premises,
and the rent provided for under the terms of this lease agreement. Efforts by
Lessor to mitigate the damages caused by Lessee's default shall not be deemed a
waiver by Lessor of any of Lessor's options or rights to recover damages under
this paragraph.
In the event of default, all of the Lessee's fixtures, furniture,
equipment, improvements and alterations shall remain on the subject premises and
in that event, and continuing during the length of said default, Lessor shall
have the right to take the exclusive possession of same and to use same, rent or
charge free, until all defaults are cured, or, at its option, upon notice at any
time during the term of this lease, to require Lessee to forthwith remove same.
If Lessee fails to remove such property within 20 days after such notice, then
Lessor may treat such property as having been abandoned and said property will
become the property of Lessor and Lessor may use, sell, or otherwise dispose of
all such property in such manner as Lessor deems available.
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<PAGE>
Unless otherwise specifically provided herein, any sum payable
to Lessor hereunder which is not paid when due shall bear interest at the
rate of 10% per annum from the date same becomes due until paid.
(d) In the event any proceeding under the Bankruptcy Act or any
amendment thereto is commenced by or against Lessee and is not dismissed
within 60 days thereafter, or in the event Lessee is adjudged insolvent or
makes an assignment for the benefit of its creditors, or if a receiver is
appointed in any proceedings or action to which Lessee is a party, with
authority to take possession or control of the demised premises or the
business conducted therein by Lessee and such receiver is not removed and
relieved of authority insofar as the demised premises is concerned within
30 days thereafter, then the occurrence of any such event shall be deemed
to constitute and shall be construed as a repudiation by Lessee of its
obligations hereunder and a breach of this lease, and thereupon at Lessor's
option, exercisable at any time thereafter, this lease shall cease to be an
asset of Lessee or Lessee's estate and Lessor shall have the right after
the exercise of such option, to forthwith enter and repossess the demised
premises and to enjoy any and all of the other rights and remedies granted
by this paragraph which accrue to the benefit of Lessor upon a default of
Lessee, which default is not cured within the period of time stipulated.
In the case of default by Lessor in the performance of any covenant or
agreement herein contained, and such default shall continue without Lessor
commencing and preceding with due diligence to cure any such default for 30
days after receipt by Lessor of written notice thereof given by Lessee, its
agent or attorneys, then, provided Lessee gives notice to Lessor's lender and an
opportunity to commence and cure default as set out in Paragraph 7 above, no
rent shall be paid or become payable under this lease for such time as such
default shall continue after the expiration of said 30-day period, and Lessee,
at its option, may:
(a) Declare the term ended and vacate the leased premises and be
relieved from all further obligation under this lease;
(b) Pay any sum necessary to perform any obligation of Lessor
hereunder and deduct the cost thereof, with interest in the amount of 10%
per annum from the rents thereafter to become due hereunder. Subject to the
30-day notice (50 days as to minor matters which do not interfere with
Lessee's reasonable use of the premises and the exercise of the rights
granted under this lease) and notice to
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<PAGE>
Lessor's lender, the performance of each and every agreement herein
contained on the part of Lessor shall be conditioned precedent to the right
of Lessor to collect rent hereunder or to enforce this lease as against
Lessee. Notwithstanding anything to the contrary in this lease, Lessor
shall not be in default under any provision of this lease unless written
notice specifying such default is mailed to Lessor and to any and all
mortgagees and/or trust deed holders of which Lessee has, prior to such
notice, been notified in writing. Lessee agrees that any such mortgage or
trust deed holder shall have the right to cure such default on behalf of
Lessor within 30 calendar days after receipt of such notice. Lessee further
agrees not to invoke any of its remedies under this lease until said 30
days have elapsed, or during any period that such mortgages or trust deed
holder is proceeding to cure such default with due diligence, or is taking
steps with due diligence to obtain a legal right to enter the leased
premises and cure the default.
12. Insurance
---------
Lessor agrees that it will, during the original term hereof, or any renewal
thereof, at its expense, keep in effect upon the leased premises, fire insurance
with extended coverage endorsement, written by a responsible insurance company
or insurance companies authorized to do an insurance business in the State of
Washington, in an amount equal to not less than 90% of the insurable replacement
value new of the entire building of which the leased premises are a part, said
policy or policies of insurance to provide that payment for any losses covered
under or by said policy or policies of insurance shall be made to Lessor and/or
Lessee and/or any mortgagee and/or assignee designated by Lessee and approved by
Lessor from time to time, as their respective interests may appear; provided,
however, that Lessor and Lessee each may appear; provided, however, that Lessor
and Lessee each agree to cooperate with each other in the adjustment of any
claim or claims with the insurance carriers and the proceeds of any insurance
recovery shall be used to repair, alter, improve or restore the leased premises,
subject to such controls thereon as shall be required by Lessee's and Lessor's
lenders, mortgages or deed of trust holders. Notwithstanding the above, if the
premises are substantially damaged or destroyed during the last three years of
the initial 10-year term, as then extended, Lessor shall have the right to
terminate the lease and not be subject to the penalty provisions entitled
"Penalty for Termination of the Lease" herein and Lessor shall not be required
to repair, alter or restore the leased premises if substantially damaged or
destroyed during the last three years of the initial ten-year term or any option
period (if an option has been exercised), unless, within 60 days after said
occurrence, Lessee exercises an additional five-year option to extend the term
of the lease pursuant to the option clause herein; if the leased premises are
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<PAGE>
substantially damaged or destroyed during the last option period, Lessor shall
have the right to terminate the lease without being subject to the penalty
clause entitled "Penalty for Termination of the Lease" herein and Lessor shall
not be required to restore or rebuild the premises. Should Lessor exercise its
option to terminate the lease, Lessee may make claim for damage to fixtures and
improvements owned by Lessee, provided said amount shall not exceed the amount
set forth in the penalty clause entitled "Penalty for Termination" set forth
herein.
Lessee shall reimburse Lessor for Lessee's pro rata share of
the insurance premiums paid by Lessor to insure the leased premises. Lessee's
pro rata share of the insurance premium shall be 16.425% for each floor leased,
of the premiums paid by Lessor to insure the entire building and insurance
premiums directly attributable to the Southeastern Entrance Area, provided that
any increase in insurance premiums over the insurance premiums now payable on
the Decatur Building resulting from increased rates due to a change in the use
of the space in the Decatur Building which is not occupied by Lessee shall be
for Lessor's account.
13. Options to Extend Term
----------------------
Lessor hereby grants to Lessee the right, at Lessee's option, to extend the
term of this lease of the premises for three separate and additional periods of
five years each after the expiration of the term hereof, each of said periods of
the same terms and conditions. These options shall be exercised by written
notice given to Lessor or delivered or mailed to Lessor, at the address at which
the rent is then payable, at least one year before the expiration of the
original term hereof, or, in the event Lessee has previously exercised one
option herein given, such notice shall be given at least one year before the
expiration of the original term hereof, or, in the event Lessee has previously
exercised one option herein given, such notice shall be given at least one year
before the expiration of the option term then in effect. The parties hereto
agree that a new lease need not be executed upon the exercise of any of these
options, but that this lease will remain in full force and effect, changed only
as to the matters specified in this paragraph; provided, however, that the
annual rental for each of the option periods shall be determined as follows:
(a) The annual rental during the first option period shall be $49,680,
payable in 12 equal monthly installments of $4,140 in advance on or before
the first day of each and every month during said option.
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<PAGE>
(b) The annual rental during the second option period shall be
$57,132, payable in 12 equal monthly installments of $4,761 in advance
on or before the first day of each and every month during said option.
(c) The annual rental during the third option period shall be
$65,702, payable in 12 equal monthly installments of $5,475 in advance
on or before the first day of each and every month during said option.
(d) Any extension of the lease term for the leased premises shall
automatically extend the lease on the M & A Building pursuant to
paragraph 21 herein and the second floor, if the option for the second
floor has been exercised.
14. Decatur Second Floor Option
---------------------------
Lessor hereby grants to Lessee the right, at Lessee's option, at any
time during the initial ten-year term of this lease, to lease the entire
second floor of the Decatur Building (this being the building in which
"the premises" hereinbefore defined and identified, are located), herein-
after called "second floor." Lessee has the right to lease under the
following conditions:
(a) Lessee may lease said second floor for an initial term, with
three additional options for five years each. The length of the
initial term shall be such that it shall terminate on the same date as
the initial ten-year term of "the premises," hereinbefore defined as
the entire fourth (4th) and entire third (3rd) floors of the Decatur
Building. The annual rental for the second floor during the initial
term shall be $24,840, payable in twelve equal monthly installments of
$2,070 on or before the first day of each and every month during said
initial term.
Lessee may notify Lessor by written notice of Lessee's intent to
lease said second floor at any time following the expiration of 42
months following the commencement date of this lease. The commencement
date of Lessee's initial term of occupancy of said second floor shall
be 18 months following Lessee's notification of Lessor of Lessee's
intent to lease.
It is understood Lessor may, at Lessor's option, lease said
second floor to others during Lessee's initial ten-year lease term in
the premises, but all such leases entered into by Lessor shall
specifically refer to and be subject to Lessee's rights as set forth
in this paragraph 14, "Decatur Second Floor Option." Should it be
necessary for Lessor to pay to such other tenant a
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<PAGE>
"penalty fee" for said other tenant's vacating said second floor upon notice by
Lessor to permit occupancy by Lessee, Lessee shall share one-half the cost of
said penalty fee. In no event shall Lessee's share of said penalty fee exceed
$7,500. Lessor shall furnish Lessee sufficient documentary evidence to
substantiate any claims made by Lessor of Lessee under the terms of this
paragraph.
(b) If Lessee elects to exercise its right to extend the term of its
lease pursuant to Paragraph 13 of this Lease Agreement for the first additional
five-year period, the annual rental for the second floor during the first
additional five-year option period shall be $28,566, payable in 12 equal monthly
installments of $2,380.50 on or before the first day of each and every month
during said first additional five-year option period.
(c) If Lessee has exercised its right to extend for the first additional
five-year option period and elects to exercise its right to extend the term of
its lease pursuant to Paragraph 13 of the Lease Agreement for the second
additional five-year option period, the annual rental for the second floor
during the second additional five-year option period shall be $32,850.90,
payable in 12 equal monthly installments of $2,737.55, on or before the first
day of each and every month during said second additional five-year option
period.
(d) If Lessee has exercised its right to extend for the first and
additional five-year option periods and elects to exercise its right to extend
the term of its lease for the third additional five-year option period, the
annual rental for the second floor during the third additional five-year option
period shall be $37,777, payable in 12 equal monthly installments of $3,148, on
or before the first day of each and every month during said third additional
five-year option period.
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<PAGE>
15. Condemnation
------------
In the event that any person or corporation, municipal, public, private or
otherwise, shall at any time during the original term or any renewal option term
hereof, condemn and acquire title to the leased promises or any substantial
portion thereof or to any easement therein, in or by any condemnation
proceedings pursuant to any law, general, specific or otherwise, and said
condemnation renders the leased premises unsuitable for Lessee's business
operation, Lessee may, at its option, give notice of its intention to cancel
this lease, effective not later than 30 days after such condemnation deprives
lessee of possession of the Leased premises, or any portion thereof, or to any
easemant therin, provided such notice of intention to cancel shall be given by
Lessee to Lessor not later than 45 days after the service of summons and
complaint on the Lessee in said condemnation action, or 15 days prior to the
trial for assessment of damages, whichever first occurs. In the event lessee
elects to cancel this lease as aforesaid, the award or payment made in respect
of the condemnation proceeding shall be distributed to the Lessor and lessee as
follows:
(a) A sum necessary to pay off and satisfy fifty
percent of the unamortized cost of the Improvement to
the leased premises, the second floor of the Decatur
Building, and the Southeastern Entrance Area. The cost
schedule for each of these improvements is set forth in
Paragraph 23. Penalty for Termination.
-----------------------
(B) The balance of the award or payment after the
obligation referred to in "a" above has been paid, shall
be paid to Lessor.
In the event that a portion of the leased premises is condemned at any time
during the original term or any renewal option term thereof, but said taking
does not affect or take a substantial portion of the leased premises or the
second floor and this lease is not cancelled as herein provided, then the entire
award shall be paid to Lessor, and the Lessor shall, as soon as possible
thereafter, restore the leased premises to a condition which is substantially
similar and of at least the quality of the leased premises prior to the
condemnation.
16. Second Floor Improvement by Lessor
----------------------------------
It is understood Lessor may cause certain improvements to be made to the
second floor prior to lessee's occupancy of said second floor pursuant to
Lessee's options to lease herein. To the extent that said improvements can be
reasonably utilized by Lessee, should Lessee exercise its right to lease, the
cost of said improvements shall be amortized at the rate of five percent per
annum for each year that Lessee occupies the second
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<PAGE>
floor pursuant to Lessee's option to lease. The amortized portion of the cost of
improvements reasonably utilized by Lessee shall be deducted from the $405,000
limit covered in paragraph 23., "Penalty for Termination." The cost of
improvements shall consist of any direct costs or pro rata share costs
applicable to the utility or mechanical improvements of the second floor,
including those monies expended for heating, ventilating and air conditioning;
electrical vault, primary and secondary electrical, lighting fixtures conduit
and outlets.
17. Coordination of Improvements
----------------------------
The parties hereto agree to cooperate in the planning and coordination of
the design and implementation of the improvements of said second floor to effect
the greatest efficiency and least loss and waste of improvements caused to be
made by Lessor, should Lessee elect to exercise its right to lease herein. Said
coordination will involve planning and cooperation by the parties hereto and any
agents, architects, engineers, contractors and consultants employed by the
parties, and will include written notification given to Lessor by Lessee,
identifying those items of improvements which can be utilized by Lessee, should
Lessee elect to exercise its rights to Lease hereunder.
Pursuant to the terms of this paragraph and the previous paragraph 16, the
rent payable by Lessee shall be increased over that amount stated in paragraph
14 (a) herein by an amount equal to one percent per month, of that amount spent
by Lessor on those improvements to said second floor which will be utilized by
Lessee, as defined above, during Lessee's occupancy of said second floor. Lessor
will furnish to Lessee an itemization of the costs of improvements made by
Lessor within said second floor within six months following the completion of
said improvements.
18. Improvements by Lessor
----------------------
Lessor shall, at Lessor's expense, be responsible to cause certain
improvements to be completed prior to commencement of the term of this lease, it
being understood Lesee's access to and quiet enjoyment of the premises shall not
be impaired. Said improvements by Lessor are as follows:
(a) Roof: Roof shall be rebuilt or repaired to a
condition to insure protection and dry conditions, it
being the responsibility of Lessor to maintain the
roof during Lessee's tenancy.
(b) Exterior building cleanup: The eastern
exterior wall of the Decatur Building shall be
cleaned by a contractor of Lessor's choice by that
method; steam, chemical, detergent, sand or glass
blasting, or other, at Lessor's option, it being
the responsibility of Lessor to maintain the building
exterior, not including window replacement and window
cleaning, during Lessee's tenancy.
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<PAGE>
(c) Stairs, ingress, egress, etc: It shall be the responsibility of Lessor
to insure that all applicable fire, building or other municipal codes and
requirements are met regarding stairways, elevators, access and all ingress to
and egress from the Decatur Building.
(d) Water and sewer service: Water service and sewer service in capacities
sufficient to satisfy Lessee's reasonable and ordinary needs and to meet all
applicable codes and requirements shall be provided to the premises and to the
second floor (second floor services will be supplied when Lessee occupies that
space) by the Lessor. It is understood that the service charge assessed by the
utility supplying water and all other utilities consumed by Lessee during
Lessee's occupancy of the premises and the second floor shall be borne by
Lessee.
(e) Elevators: In the event Lessor shall cause the present passenger
elevator in the Decatur Building to be made operable, meeting all the
applicable codes and requirements, the passenger elevator shall be equipped with
security devices which under Lessee's control can prohibit access or restrict
access to the floors occupied by Lessee for such periods of time or days of the
week that Lessee shall cause the elevators to be shut off or restrict service to
the floors occupied by Lessee. There is presently one freight elevator in the
Decatur Building. Said freight elevator in the Decatur Building will be made
operable, meeting all applicable codes and requirements. The freight elevator
and the passenger elevator or elevators will be made available for the general
non-exclusive use of Lessee between 7:30 a.m. and 6:00 p.m., Mondays through
Fridays, or more, at Lessor's option, throughout Lessee's occupancy in the
Decatur Building. Provided, however, Lessee shall, subject to reasonable
security measures agreed upon by the parties, have the right to use the areas
designated by Lessor for the entrance, elevator systems and common areas of the
Decatur Building at all times Lessee so desires.
(f) Electrical vault: Lessor will cause to be constructed an electrical
vault adequately sized to contain the electrical transformers necessary to
serve the reasonably expected needs of the Decatur Building. Lessee will pay to
Lessor its pro rata share of the cost of said electrical vault, and the cost of
bringing (primary) power from said electrical vault to Lessee's electrical panel
within Lessee's premises. Lessee's architect and/or engineer will be consulted
by Lessor or Lessor's agent, architect, engineer or contractor and Lessor will
cause the design and construction of said electrical vault to be adequate to
serve Lessee's electrical needs. Location, design and type of construction of
said electrical
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<PAGE>
vault shall be determined by Lessor, subject to Lessee's reasonable
approval as the same affects the fourth, third and second floors. Lessee's
pro rata share of the costs referred to in this paragraph shall not exceed
$5,000 per floor, payable as to the fourth and third floors within 10 days
after completion thereof, and receipt by Lessee of an itemized statement of
Lessor's actual costs, and payable as to the second floor when Lessee
elects to exercise its option to lease the second floor.
19. Southeastern Entrance and Elevators.
-----------------------------------
(a) Lessor shall, prior to the commencement of the term of this
lease, cause to be constructed in the southeastern corner of the Decatur
Building, at a location on the first floor of the building which is
mutually acceptable to each party, a common entry, lobby and two-car
elevator system, hereinafter called the "Southeastern Entrance Area." The
Southeastern Entrance Area shall be for the non-exclusive use of Lessee and
shall provide for the ingress and egress of Lessee, its employees, agents
and invitees. The Southeastern Entrance Area shall be available for
Lessee's non-exclusive use at all times. Each of the elevators shall be
equipped with a security device which, under Lessee's control, can prohibit
access or restrict access to the leased premises for such periods of time
or days of the week that Lessee shall elect. Notwithstanding anything in
this lease to the contrary, in no event shall the term of this lease
commence until the Southeastern Entrance Area is completed in accordance
with the plans and specifications approved by the parties, provided,
however, in the event the improvements to the Southeastern Entrance Area
are not completed on the date the term is scheduled to commence in
accordance with paragraph 2, Term and said delay is due to the Lessee's
----
negligence, willful misconduct, to changes made to the approved plans and
specifications submitted by Lessee's architect, or in the event the Lessee
elects to have the contract for construction of the improvements to the
Southeastern Entrance Area awarded on a sealed bid basis in accordance with
Paragraph 19(g) hereof, and said election causes a delay in the completion
of the improvements, then the term shall commence on the date the
Southeastern Entrance Area is completed less the number of days which
Lessee's negligence, willful misconduct, change orders required by Lessee
and/or election to have the contract awarded on a sealed bid basis extended
the completion date for the construction of the improvements to the
Southeastern Entrance Area.
(b) The Southeastern Entrance Area shall contain no more than one and
one-half bays, the exact location, and dimensions of the Southeastern
Entrance Area shall be set forth in the plans and specifications approved
by the parties. A description of the Southeastern Entrance Area shall be
made a part of the Memorandum of Lease to be recorded pursuant to the terms
hereof.
(c) The construction of the Southeastern Entrance Area shall be
completed in accordance with plans and specifications prepared by an
architect retained by the Lessee. Said plans and specifications are subject
to the approval of Lessor, which approval shall not be unreasonably
withheld. Lessee shall, within 60
-17-
<PAGE>
days following the execution of this Lease Agreement, submit plans and
specifications to Lessor for its approval. Lessor shall approve or
disapprove the plans and specifications submitted within 15 days after
receipt from Lessee. If Lessor neither approves nor disapproves the
submitted plans in writing within said 15-day period, then the plans and
specifications submitted shall be conclusively presumed to be approved. In
the event Lessor disapproves the plans and specifications submitted, the
parties shall attempt to resolve the conflict which exists over the plans
and specifications. If the parties cannot agree upon plans and
specifications for construction of the Southeastern Entrance Area within 90
days following the original notice of disapproval by Lessor, then Lessee
may, at its option, terminate this lease.
(d) The original expense of having plans and specifications for the
construction of the Southeastern Entrance Area prepared shall be paid by
Lessee. The expense shall be included in the definition of construction
cost. The dollar amount paid by Lessee directly to its architect shall be
credited against the Lessee's share of the construction costs for the
Southeastern Entrance Area.
(e) The parties estimate that the cost of construction of the
Southeastern Entrance Area shall be $255,000. In the event the construction
costs are $255,000, Lessee will reimburse Lessor for $70,000 of the
construction costs. Said reimbursement payments shall be made by Lessee to
Lessor according to the progress payments set forth in the construction
contract for the Southeastern Entrance Area. Lessee shall, at the times
prescribed in the construction contract, pay to Lessor its pro rata share
of the progress payment or the final payment. In the event the construction
costs exceed $255,000, Lessee shall reimburse Lessor $70,000, plus the
amount by which the construction costs exceed $255,000. In the event
construction costs are less than $255,000, the cost saving shall be shared
by the parties hereto on a pro rata basis with Lessee receiving 70/255 of
the cost savings and the Lessor receiving 185/255 of the cost saving.
(f) As used herein, the term construction costs shall mean and
include all costs of constructing the improvements to the Southeastern
Entrance Area in accordance with the plans and specifications submitted by
Lessee's architect and approved by Lessor, including architect and
engineering fees, Washington State sales tax, costs of permits and reports
required by governmental authorities and payment and/or performance bonds
required by Lessee, but excluding administrative expenses, financing
charges and other miscellaneous expenses not directly associated with the
construction of improvements.
(g) At Lessee's option, the contract for construction of the
Southeastern Entrance Area shall be awarded on a sealed-bid basis from a
list of bidders which has been approved by Lessee in writing.
-18-
<PAGE>
(h) In the event that neither Lessee nor Lessor is able to
obtain a negotiated contract or a bid contract for a total
construction cost of $255,000 or less, then Lessee at its option
may cause its architect to amend the plans and specifications for
the construction of improvements to the Southeastern Entrance
Area and elevator system. The improvements to be constructed by
Lessor shall then be made in accordance with the amended plans
and specifications.
(i) Lessor shall, promptly after completion of the
Southeastern Entrance Area, furnish to Lessee an itemized summary
of the construction costs, and such costs shall be subject to
audit by Lessee's authorized representatives, provided, the audit
must be commenced within 60 days after receipt of the final
itemized summary. Said audit is to be completed with due
diligence. Lessee and/or Lessor shall remit any difference found
to be owing within 15 days, if the audit proves there has been a
mistake as to the sum owed by each party.
(j) The parties each acknowledge that at some date in the
future Lessor may, at its option, and at its expense, expand the
Southeastern Entrance Area by providing elevator service to the
basement floor of the Decatur Building. In the event that the
Lessor does expand the Southeastern Entrance Area by providing
elevator service to the basement floor, the then existing
elevator system, the pro rata share of Lessee and Lessor for
taxes, repair, maintenance and cleaning expenses shall be
adjusted and the following formula shall determine the pro rata
share of Lessor and Lessee.
The total amount of taxes, repair, maintenance and
cleaning expense attributable to the Southeastern Entrance Area
shall be multiplied by a fraction, the numerator of which is the
square footage of floor area of the Decatur Building leased to
the Lessee and the denominator of which is the total square
footage of the basement, second floor, third floor and fourth
floor of the Decatur Building. Lessee shall reimburse Lessor an
amount equal to the product of the multiplication; the balance
shall be for Lessor's account.
(k) In the event Lessor does elect to expand the
Southeastern Entrance Area, Lessor shall complete said expansion
as quickly, quietly and neatly as possible. At all times during
the expansion of the Southeastern Entrance Area, the entrance is
to be open and usable and at least one elevator is to be in
service at all times.
20. Pro Rata Share
--------------
Within ten days following the date Lessor has delivered or mailed to Lessee
an itemized statement for taxes or insurance which have accrued from the date of
this lease to the date the term commences on the Decatur Building and land,
Lessee shall pay to Lessor an amount equal to its pro rata share of the real
estate taxes, assessments and all charges for fire and extended coverage
insurance levied against or applicable thereto.
-10-
<PAGE>
21. M & A Building Lease to Continue
--------------------------------
It is understood there is presently in effect between Lessee and Lessor
(then known as Louisa C. Frye, Inc., a Washington corporation) that certain
lease dated December 1, 1966, and later amended by first lease amendment dated
February 20, 1969, and by second lease amendment dated January 3, 1973, for the
tenancy by Lessee of that certain real property situated in Seattle, King
County, State of Washington, described as follows: Lots 10 and 11 in Block 18,
A.A. Denny's Addition to the City of Seattle, being located at the northwest
corner of Sixth Avenue and Pike Street, Seattle, together with the appurtenances
thereto belonging and the building situated thereon adjacent to the Decatur
Building and known as the M & A Building.
Said lease, as amended, shall continue in full force and effect and may be
extended beyond the second option term referred to in paragraph 3, as amended.
Said extension shall be automatic with extensions to the premises and the second
floor hereunder and shall be concurrent with said extensions as to term and
notice requirement. Upon the expiration of the present M & A Building lease and
extensions, fixed minimum annual rent on said building shall be the same amount
as that amount then being paid. In addition, Lessee shall pay to Lessor
percentage rental as called for in paragraph 3 (b) in that original lease dated
December 1, 1966, between the parties hereto.
In the event Lessee does not operate a retail facility in the M & A
Building on the entire first floor in the area presently used for retail sales,
and the percentage rental clause referred to above is therefore not applicable,
annual rental of the M & A Building, at the expiration of the second option
term, shall be escalated as called for in paragraph 2 of the first lease
amendment, with figures adjusted to reflect the then applicable amounts and
dates.
22. Common Area Maintenance
-----------------------
Lessor shall be responsible for the control, management and
maintenance of the common areas in and about the Decatur Building, pursuant to
Lessee's right of access, ingress and egress stated herein. Lessor shall keep
common areas, including, but not limited to, the Southeastern Entrance Area and
the elevators therein, sidewalks and the access area from the outside entrance
to the passenger elevator, driveways, lighting, landscaping, stairs, directional
signs, the passenger elevator and the freight elevator, loading areas, the
building exterior,
-20-
<PAGE>
in good repair and in a state of reasonable cleanliness, adequately maintained,
drained, lighted, policed and otherwise regulated. Lessee shall share in the
cost, monthly, of said control, management and maintenance on a pro rata basis.
Lessor shall furnish to Lessee each month an itemized statement of all costs
incurred in said control, management and maintenance, provided, however, that
there shall be excluded capital expenses, as the term capital expense is used by
Lessee in determining its United States income taxes. Lessor shall maintain
accurate books of record relating to said costs which may be examined at
reasonable times during normal business hours by Lessee. Lessee shall reimburse
Lessor for the maintenance expanse and cleaning expense necessary to keep the
Southeastern Entrance Area in good order and a neat, clean condition; provided,
however, in the event a portion of the second floor of the Decatur Building is
occupied by a third party, Lessor or its agents who use (as defined in paragraph
d) the Southeastern Entrance Area, then the maintenance expense and cleaning
expense attributable to the Southeastern Entrance Area shall be prorated between
Lessor and Lessee according to the formula set forth in Paragraph 4 hereof for
the proration of taxes.
21. Penalty for Termination
-----------------------
Lessor shall have the right to terminate this lease or any extension
thereof at any time by giving Lessee written notification of its intent to do
so, and allowing Lessee 24 months to vacate the premises. The right to terminate
this lease contained in this paragraph 23 shall be conditioned upon Lessor's
irrevocable commitment to demolish and/or raze the Decatur Building within 120
days from the date Lessee is required to vacate the premises, provided, however,
that said date shall be extended for a period equal to the period of any delay
encountered by Lessor because of force majeure, including inclement weather or
other acts of God, riot, insurrection, government regulations or strikes
affecting Lessor's work or shortages of labor resulting from government controls
or diversions or any other cause beyond the control of Lessor. Should Lessor
exercise its right hereunder, it shall pay to Lessee a penalty of $500,000, plus
an amount to be determined according to the following formula: the dollar amount
which Lessee has expended on improvements to the Southeastern Entrance Area and
the second, third and fourth floors shall be amortized from the commencement
date of the term of this lease at the rate of five percent per annum. In
addition to the $500,000 penalty provided for herein, Lessor shall pay to Lessee
on the date provided for in this paragraph, an amount equal to the unamortized
portion of the amount Lessee has expended on the improvements to the second,
third and fourth floors and the Lessee's share of the construction costs for the
Southeastern Entrance Area. For purposes of this paragraph, the limit of
additional penalty to which Lessor is exposed in terms of unamortized cost of
improvements shall be as follows:
-21-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(a) Southeastern Entrance Area (Lessee's share of the construction costs for the
Southeastern Entrance Area)
(b) Second Floor 405,000.00
(c) Third Floor 405,000.00
(e) Fourth Floor 430,000.00
</TABLE>
The total penalty payment is to be made by Lessor to Lessee on or before 12
months after notice of termination is given to Lessee by Lessor. If
pursuant to this paragraph Lessee is required to vacate the premises during
or after the eighth year of the initial term of this lease, the total
penalty shall be reduced $50,000, if Lessee is required to vacate the
leased premises during the ninth year or thereafter during the lease term
as extended, the penalty shall be reduced by $100,000. Provided, however,
if Lessee exercises the option to lease the second floor of the Decatur
Building, and does use improvements made by Lessor to the second floor
pursuant to paragraph 16 and 17 of the Lease Agreement, then the total
dollar amount of the penalty which otherwise would have been assessed shall
be reduced by an amount equal to the unamortized costs of improvements to
the second floor of the Decatur Building made by Lessor and actually used
by Lessee. Said improvements shall be amortized at the rate of 5% per annum
for each year Lessee leases the second floor of the Decatur Building. The
provisions of this paragraph do not apply if Lessor demolishes the Decatur
Building after this lease, as extended, has expired. This paragraph has no
effect on any similar provision now in effect between Lessee and Lessor in
that lease between Lessee and Lessor on that building known as the M & A
Building at the northwest corner of Sixth Avenue and Pike Street in
Seattle, Washington.
24. Notices
-------
Any notice provided for herein shall be given by registered United
States mail, postage prepaid, addressed, if to Lessor, to the person to
whom the rent is then payable at the address to which the rent is then
mailed, and, if to Lessee, to it at 1?11 Sixth Avenue, Seattle, Washington
98101. The person and the place to which notices are to be mailed may be
changed from time to time by either party by written notice given to the
other party. Notice given pursuant to this paragraph shall be deemed
effective on the date they are received by the party to whom notice is
being given.
25. Form of Reproduced Document
---------------------------
The parties understand and agree that portions of this lease may
be a reproduction of a printed or typed form or reproduced form, and
portions may be typewritten and/or inserted by way of typing or hand
printing, and that in the event of a conflict, said portions, whether
printed, typewritten or hand printed, shall be given equal standing.
26. Sale of Premises by Lessor
--------------------------
In the event of a sale or exchange of the leased premises by
Lessor and/or an assignment by Lessor of its interest in this lease, the
same shall operate to release Lessor from any obligations thereunder
accruing thereafter under this lease.
-22-
<PAGE>
?????? reserves the right to enter upon ??? leased premises during business
hours at any reasonable time to inspect the same or for purposes of exhibiting
the same to persons wishing to purchase the same. Lessor also reserves the
right, at any time within two years next preceding the expiration of the term
hereby granted or any renewal thereof; provided said term has not been extended
by Lessee's exercise of the option privileges contained in paragraph 13 hereof,
to place notices on the front of the leased premises offering said leased
premises "to let" or both "to let" and "for sale" signs or notices otherwise
advertising the building as available, and all of said notices may contain such
matter as Lessor may require, and such notice or notices shall not be removed by
Lessee or Lessee's agent or employees. Such notices, however, shall not be
placed upon the doors or windows of the building improvements. All signs to let
or for sale shall be reasonable in size, character and location so that the
signs do not detract from the appearance of the building or the Lessee's
business.
28. Compliance with Laws
--------------------
Lessee agrees throughout the original term of this lease or any renewal
thereof to comply with all laws, ordinances, orders, rules, regulations and
requirements of all governmental authorities having jurisdiction of the leased
premises. Lessee may contest the validity of any such laws, ordinances, orders,
rules, regulations and requirements but shall indemnify and hold Lessor harmless
against the consequences of any violation thereby by Lessee.
29. Estoppel Statements
-------------------
Upon the written request of either party, to this lease, and provided that
the other party can do so truthfully, the other party shall promptly certify in
writing to all persons designated by the party requesting that, to the best of
its knowledge:
(a) The party making the request has performed its obligations
and is not in default under this lease or if in default what the defaults
consist of;
(b) The lease, with amendments listed, is in full force and
effect; and
(c) The person receiving such certification may rely thereon for
all purposes.
Each party shall hold the other harmless from and against all losses,
costs, damages and causes of action arising out of or from any inaccuracies or
misrepresentations in such certifications.
30. Lessor's Remedies
-----------------
No remedy herein conferred upon or reserved to Lessor or to Lessee is
intended to be exclusive of any other remedy herein
-23-
<PAGE>
or by law provided, but each shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing at law or in
equity or by statute.
31. Covenants Binding on Successors
-------------------------------
The covenants and agreements of this lease shall be binding upon the
successors and assigns of both of the parties hereto.
32. Paragraph Headings
------------------
The paragraph headings herein contained are inserted only as a matter of
convenience and for reference and in no way define, limit or describe the scope
or intent of this lease, nor in any way affect the terms and provisions hereof.
33. Attorneys' Fees
---------------
In the event of litigation to enforce this lease, the prevailing party
shall be entitled to reasonable attorneys' fees from the other party.
34. Recording
---------
This lease shall not be recorded, but it is agreed that the parties will
execute a short form of this lease at the same time this lease is executed, and
the same shall be recorded.
35. Modification
------------
This lease agreement may not be modified except in writing executed by
Lessor and Lessee or their successors in interest.
36. Severability
------------
The invalidity of any provision of this lease, as determined by court of
competent jurisdiction, shall in no way affect the validity of any other
provision of this lease agreement.
37. Use of Premises
---------------
Lessee shall use and occupy the leased premises as an office building and
storage and for no other purpose.
38. Non-Waiver
----------
The failure of Lessor to insist upon strict performances of any of the
covenants and agreements of the lease shall not be construed as a waiver of such
covenant or condition in any other instance.
39. Consents
--------
The prior consent or approval of Lessor or Lessee where required herein
shall not be unreasonably withheld.
-24-
<PAGE>
40. Waiver of Subrogation
---------------------
Lessor shall cause each insurance policy carried by Lessor insuring the
demised premises against loss by fire and causes covered by standard extended
coverage, and Lessee shall cause each insurance policy carried by Lessee, if
any, and insuring the demised premises and/or its fixtures and contents against
loss by fire and causes covered by standard extended coverage, to be written in
a manner so as to provide that the insurance company waives all right of
recovery by way of subrogation against Lessor or Lessee in connection with any
loss or damage covered by any such policies, regardless of any provision in this
lease to the contrary. Neither party shall be liable to the other for any loss
or damage caused by fire or any of the other risks enumerated in standard
extended coverage insurance endorsement approved for use in the State of
Washington, provided such insurance was obtainable at the time of such loss or
damage. However, if such insurance policies cannot be obtained, or are
obtainable only by the payment of an additional premium charge above that
charged by companies carrying such insurance without such waiver of subrogation,
the party undertaking to carry such insurance shall notify the other party of
such fact and such other party shall have a period of ten days after the giving
of such notice either to (a) place such insurance in companies which are
reasonably satisfactory to the other party and will carry such insurance with
waiver of such subrogation, or (b) agree to pay such additional premium if such
policy is obtainable at additional cost (in the case of Lessee, pro rata in
proportion of Lessee's space covered by such insurance to the square feet of
floor space covered by such insurance); and if neither (a) nor (b) is done, this
paragraph shall be null and void for so long as either such insurance cannot be
obtained or the party in whose favor a waiver of subrogation is desired shall
refuse to pay the additional premium charge. If the release of either Lessor or
Lessee, as set forth in the second sentence of this paragraph, shall contravene
any law with respect to exculpatory agreements, the liability of the party in
question shall be deemed not released but shall be deemed secondary to the
letter's insurer.
41. Subordination
-------------
This lease shall be subject and subordinate to any institutional first
mortgage or deed of trust placed by Lessor upon the leased premises or any
property of which the leased premises is a part, provided that any such mortgage
or deed of trust holder shall execute an agreement containing provisions which
provide that Lessee's rights under this lease shall not be affected by the
mortgage or deed of trust holder provided Lessee continues to pay rent as in
this lease set out, and otherwise complies with the terms and provisions
contained therein.
-25-
<PAGE>
Each and all of the covenants, terms, agreements and obligations of this
lease shall extend to and bind and inure to the benefit of the heirs, the
personal representatives, the successors and/or assigns of the parties hereto;
that herein the singular number includes the plural, and the masculine gender
includes the feminine and the neuter.
IN WITNESS WHEREOF, the parties have executed this instrument the date
first above written.
"LESSOR" LCF ASSOCIATES, a Washington
Limited Partnership
By /s/ Davi C. Pinkerton
-----------------------------------
designated representative of the
Management Committee, as attorney-in-fact
for General Partners
"LESSEE" PAY'N SAVE CORPORATION
By /s/ Lamont Bean
----------------------------------
President
By /s/ Raymond Swanson
----------------------------------
Secretary
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
THIS IS TO CERTIFY that on this 10th day of June, 1976, before me, the
undersigned, a notary public in and for the state of Washington, duly
commissioned and sworn, personally appeared DAVID C. PINKERTON, designated
representative of the Management Committee of LCF ASSOCIATES, as attorney-in-
fact for general partners of LCF ASSOCIATES, a Limited partnership, to me known
to be the individual described in and who executed the within instrument as such
attorney-in-fact, and acknowledged to me that he signed the same as his free and
voluntary act and deed on behalf of such general partners, for the uses and
purposes therein mentioned, and on oath stated that the Power of Attorney
authorizing the execution of this instrument has not been revoked and that said
principals are all now living and not insane.
WITNESS my hand and official seal the day and year in this certificate
first above written.
/s/ Bertha Robell
----------------------------------------
Notary public in and for the state of
Washington, residing at Bothel.
-26-
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this day personally appeared before me M. LAMONT BEAN and RAYMOND C.
SWANSON, to me known to be the President and Secretary, respectively, of PAY'N
SAVE CORPORATION, the corporation that executed the foregoing instrument, and
acknowledged said instrument to be the free and voluntary act and deed of said
corporation, for the uses and purposes therein mentioned, and on oath stated
that they were authorized to execute said instrument.
WITNESS my hand and official seal hereto affixed on June 15, 1976.
[SIGNATURE APPEARS HERE]
----------------------------------
Notary Public in and for the State
of Washington, residing at Seattle.
-27-
<PAGE>
CONSENT BY MANAGEMENT COMMITTEE
-------------------------------
The undersigned, representing at least 66-2/3 percent of the Management
Committee of LCF Associates, a Washington limited partnership, consent to and
approve of the leasing to Pay 'n' Save Corporation, a Washington corporation, of
the real property commonly known as the Decatur Building and M & A Building in
Seattle, Washington, more particularly described on Exhibit A attached hererto,
for an annual rental of not less than $ Per the lease draft dated 3-16-76 and a
---------------------------------
term of not less than $ Per the lease draft dated 3-16-76.
---------------------------------
We hereby designate David C. Pinkerton as our designated representative on
behalf of the limited partnership for the purpose of negotiating, signing and
executing any and all documents relating to the leasing of the above-described
property.
EXECUTED this 1st day of April, 1976.
------------------------------------
John Walsh
/s/ Robert Denny Watt
------------------------------------
Robert Denny Watt
/s/ Patricia O. Wright
------------------------------------
Patricia O. Wright
/s/ David C. Pinkerton
------------------------------------
David C. Pinkerton
/s/ Charles H. Badgley
------------------------------------
Charles H. Badgley
<PAGE>
CONSENT OF GENERAL PARTNERSHIP
------------------------------
The undersigned, representing at least 66-2/3 percent liability of the
General Partners of LCF Associates, a Washington limited partnership (LCF),
pursuant to Section 7(b) of the General Partnership Agreement, hereby consent to
and approve of LCF leasing to Pay 'n' Save Corporation, a Washington corporation
(P and S), the third and fourth floors of the Decatur Building, located on the
real property more particularly described in Exhibit "A". In addition, LCF may
grant P and S an option to lease the entire second floor of the Decatur
Building. The lease shall be for a term of not less than ten years with three
additional five-year options.
The undersigned also consent to and approve of LCF granting at least two
additional five-year options to P and S on the current lease between LCF and P
and S on the property more commonly known as the M & A Building and more
particularly described in Exhibit "B" attached hereto.
We hereby designate David C. Pinkerton as our designated representative on
behalf of LCF for the purpose of executing, signing, negotiating and
acknowledging any and all documents with respect to the lease on the Decatur
Building and option on the M & A Building.
EXECUTED this 13th day of May 1976.
/s/ Robert Denny Watt 4/23/76
------------------------------------
Robert Denny Watt
/s/ John Reid Watt 4/12/76
------------------------------------
John Reid Watt
/s/ Richard Frye Watt 4/12/76
------------------------------------
Richard Frye Watt
/s/ Patricia O. Wright 5/13/76
------------------------------------
Patricia Osborne Wright
/s/ Elizabeth O. Pinkerton 5/13/76
------------------------------------
Elizabeth Osborne Pinkerton
------------------------------------
Jean Osborne Wilhelm
<PAGE>
The undersigned, representing at least 66-2/3 percent liability of the
General Partners of LCF Associates, a Washington limited partnership (LCF),
pursuant to Section 7(b) of the General Partnership Agreement, hereby consent to
and approve of LCF leasing to Pay'n'Save Corporation, a Washington corporation
(P and S), the third and fourth floors of the Decatur Building, located on the
real property more particularly described in Exhibit "A". In addition, LCF may
grant P and S an option to lease the entire second floor of the Decatur
Building. The lease shall be for a term of not less than ten years with three
additional five-year options.
The undersigned also consent to and approve of LCF granting at least two
additional five-year options to P and S on the current lease between LCF and P
and S on the property more commonly known as the M & A Building and more
particularly described in Exhibit "B" attached hereto.
We hereby designate David C. Pinkerton as our designated representative on
behalf of LCF for the purpose of executing, signing, negotiating and
acknowledging any and all documents with respect to the lease on the Decatur
Building and option on the M & A Building.
EXECUTED this 12th day of April, 1976.
/s/ Robert Denny Watt 04-23-76
------------------------------------------
Robert Denny Watt
__________________________________________
John Reid Watt
/s/ Richard Frye Watt 04-12-76
------------------------------------------
Richard Frye Watt
/s/ Patricia Osborne Wright 05-13-76
------------------------------------------
Patricia Osborne Wright
/s/ Elizabeth Osborne Pinkerton 05-13-76
------------------------------------------
Elizabeth Osborne Pinkerton
/s/ Jean Osborne Wilhelm 04-14-76
------------------------------------------
Jean Osborne Wilhelm
<PAGE>
LEASE AMENDMENT AND UNDERSTANDING
This Lease Amendment and Understanding is made and entered into as of this
20th day of April, 1981, by and between L.C.F. ASSOCIATES, a Washington limited
partnership ("Lessor"), and PAY 'N SAVE CORPORATION, a Washington corporation
("Lessee"). By instrument dated June 15, 1976 (the "Lease"), Lessor and Lessee
entered into a lease for premises constituting a portion of certain real
property located in the City of Seattle, County of King, State of Washington,
commonly known as the Decatur Building.
In consideration of the mutual promises contained herein, Lessor and
Lessee agree as follows:
1. Exercise of Option. Lessee hereby gives, and Lessor acknowledges
------------------
receipt of, notice of intent to exercise the option to lease the entire second
floor of the Decatur Building ("Second Floor") according to the terms of
paragraph 14 of the Lease as modified hereby.
2. Commencement Date of Rental Obligation. Lessee's obligation to pay
--------------------------------------
rent for the Second Floor shall commence upon the earlier of January
1, 1982 or the date on which Lessee receives a Certificate of
Occupancy from the Building Department of the City of Seattle
permitting occupancy of the Second Floor by Lessee. It shall be the
sole responsibility of Lessee to obtain such Certificate of Occupancy
at its sole expense. Expect for construction purposes, Lessee shall
not occupy the Second Floor until it has obtained such Certificate of
Occupancy.
3. Commencement of Other Payment Obligations. For the purpose of
-----------------------------------------
calculation Lessee's pro rata share of any costs, fees, expenses, or other
charges relating to insurance, utilities, repairs, real estate taxes, common
area maintenance, electrical vault, or any other item for which pro rata shares
are calculated under the terms of paragraphs 4, 7, 18, 20, 22, or any other
provisions of the Lease, the commencement date of the Lessee's occupancy of the
Second Floor shall be the date hereof. Lessee understands and agrees that under
paragraph 18(f) of the Lease, its pro rata share of the cost of the electrical
vault by virtue of its lease of the Second Floor shall be $5,000, which amount
shall be due and payable upon execution of this Lease Amendment and
Understanding.
4. Manner of Construction. Any and all construction, alteration,
----------------------
repair, or other work relating to the Second
<PAGE>
Floor which is performed by, on behalf of, or under the direction of Lessee
shall be performed in such a manner that no other tenant of the Decatur Building
is unreasonably disturbed by noise, dust, debris, traffic, or other disturbance
caused by such construction, alteration, repair, or other work.
5. Indemnification and Hold Harmless. Lessee agrees to indemnify and hold
---------------------------------
Lessor harmless from all loss, judgment, cost or expense, including attorneys
fees, resulting from construction, alteration, repair, or other work relating
to the Second Floor which is performed by, on behalf of, or under the direction
of Lessee.
6. Insurance. Lessee shall provide and maintain course of construction
---------
insurance in a form and amount satisfactory to Lessor, with a loss payable
clause in such form as shall be designated by and in favor of Lessor, insuring
against any loss or damage which may be incurred by Lessor as a result of the
construction, alteration, repair, or other work relating to the Second Floor
which is performed by, on behalf of, or under the direction of Lessee.
7. Remaining Provisions Unchanged. Except as modified herein, all other
------------------------------
terms, covenants, and conditions of the Lease shall remain in full force and
effect.
L.C.F ASSOCIATES, A
Washington limited partnership
By /s/ David C. Pinkerton
----------------------------
David C. Pinkerton, designated
representative of the Management
Committee, as attorney-in-fact
for General Partners
PAY'n SAVE CORPORATION
By /s/ Lamont Bean
----------------------------
By /s/ Raymond Swanson
----------------------------
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
ON THIS DAY before me, the undersigned, notary public in and for the state
of Washington, duly commissioned and sworn, personally appeared DAVID C.
PINKERTON, designated representative of the Management Committee of LCF
ASSOCIATES, as attorney-in-fact for general partners of LCF ASSOCIATES, a
limited partnership, to me known to be the individual described in and who
executed the within instrument as such attorney-in-fact, and acknowledged to me
that he signed the same as his free and voluntary act and deed on behalf of such
general partners, for the uses and purposes therein mentioned, and on oath
stated that the Power of Attorney authorizing the execution of this instrument
has not been revoked and that said principals are all now living and not insane.
WITNESS my hand and official seal hereto affixed on April 20, 1981.
/s/ Kathleen A. Burns
-------------------------------------
Notary public in and for the
state of Washington, residing at
Seattle
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
ON THIS DAY before me, a notary public in and for the state of Washington,
duly commissioned and sworn, personally appeared M. Lamont Bean and Raymond C.
Swanson, to me known to be the President and Secretary, respectively, of PAY 'N
SAVE CORPORATION, the corporation that executed the foregoing instrument, and
acknowledged said instrument to be the free and voluntary act and deed of said
corporation, for the uses and purposes therein mentioned, and on oath stated
that they were authorized to execute said instrument.
WITNESS my hand and official seal hereto affixed on April 17, 1981.
/s/ Peggy L. Pritehard
-------------------------------------
Notary public in and for the
state of Washington, residing
at Kent
<PAGE>
LEASE AMENDMENT
THIS LEASE AMENDMENT dated this 29th day of January, 1982, is among LCF
ASSOCIATES, a Washington limited partnership ("LCF"), PAY 'N SAVE CORPORATION, a
Washington corporation ("Pay 'n Save").
LCF is the Lessor and Pay 'n Save is the Lessee under (i) the lease (the
"Decatur Lease") dated June 15, 1976 and amendment dated April 20, 1981
pertaining to portions of certain real property located in Seattle, Washington
and commonly known as the Decatur Building, a copy of the Decatur Lease is
attached hereto as Exhibit A, and by this Reference made a part hereof.
LCF together with various other entities (Venture) desires to demolish the
M & A Building, located immediately adjacent to the Decatur Building and
terminate a lease between Pay 'n Save and LCF dated December 1, 1966 together
with amendments dated February 20, 1969 and January 3, 1973 (M&A Lease), to
enable LCF to construct a new building (the "New Building") on the M & A
Building site and relocate a portion of Pay 'n Save in the Decatur Building.
In consideration of the mutual covenants and conditions contained herein,
LCF and Pay 'n Save agree as follows:
1. Premises. Paragraph 1 of the Decatur Lease is modified to add to the
--------
description of the leased premises the entire basement of the Decatur Building
("Basement"), which Basement comprises an area of approximately 19,000 square
feet.
2. Term. Paragraph 2 of the Decatur Lease is modified by deleting the
----
second sentence of such Paragraph in its entirety and inserting in lieu therof
the following language:
With respect to the Basement, the term shall commence
January 1, 1982 and such term shall expire at the same
time as shall the lease term with respect to other
portions of the leased premises.
3. Rental. Paragraph 3 of the Decatur Lease is modified by inserting
------
between the first and second sentences thereof the following new sentence:
-1-
<PAGE>
In addition to the annual rental described above, Lessee shall pay to
Lessor at such place as Lessor from time to time designates, an annual
rental of $86,000 with respect to the Basement, which amount shall be
payable in equal monthly installments on or before the first day of each
month during the term of this Lease.
4. Taxes, Utility Charges, Etc. Notwithstanding the provisions of
---------------------------
Paragraph 2 above, the obligation of Pay 'n Save to pay its pro rata share of
all costs, fees, expenses or other charges for electricity, water, gas,
telephone and all other utility services, insurance, repairs, real estate taxes,
electrical vault, common area maintenance or any other item for which pro rata
shares are calculated under the terms of paragraphs 4, 7, 12, 18, 20, 22 or any
other provisions of this lease, by virtue of its occupancy of the Basement,
shall commence August 1, 1981. Pay 'n Save will install at its sole cost and
expense a remote reading water meter to measure water consumption in the
Basement.
5. Options to Extend Term. The first sentence of Paragraph 13 of the
----------------------
Decatur Lease is modified to read as follows:
Lessor hereby grants to Lessee the right, at Lessee's option, to extend the
term of this lease of the premises for five (5) separate and additional
periods of five (5) years each after the expiration of the term hereof,
each of said periods on the same terms and conditions except as
specifically provided otherwise herein. In the event Lessee exercises all
options granted herein, this lease shall therefore terminate April 30,
2012.
6. Rental Escalations. Paragraph 13 of the Lease is further modified by
------------------
deleting Subparagraphs (a), (b), (c) and (d) and inserting in lieu thereof the
following language:
(a) With respect to portions of the leased premises other than the second
floor and Basement, the annual rental during the first option period shall
be $49,680, payable in 12 equal monthly installments of $4,140 in advance
on or before the first day of each and every month during said option.
-2-
<PAGE>
(b) With respect to portions of the leased premises other than the second
floor and Basement, the annual rental during the second option period shall
be $57,132, payable in 12 equal monthly installments of $4,761 in advance
on or before the first day of each and every month during said option.
(c) With respect to portions of the leased premises other than the second
floor and Basement, the annual rental during the third option period shall
be $65,702, payable in 12 equal monthly installments of $5,475 in advance
on or before the first day of each and every month during said option.
(d) The annual rental with respect to the second floor during the first
option period shall be $28,566, payable in 12 equal monthly installments of
$2,380,50 in advance on or before the first day of each and every month
during said option.
The annual rental for the second additional option period shall be
$32,850,90 payable in advance in 12 equal monthly installments of $2,737.55
on or before the first day of each and every month during said option.
The annual rental for the third additional option period shall be
$37,777 payable in advance in 12 equal monthly installments of $3,148 on or
before the first day of each and every month during said option.
(e) The annual rental with respect to the Basement during any option
period and with respect to portions of the leased premises other than the
Basement including the second floor during the fourth and fifth option
periods shall be escalated from the rental rates described in paragraph 13
by a percentage represented by the increase of average actual multi-tenant
rates for the new building to be constructed on the M & A Building site
negotiated within the calendar year in which the renewal term commences,
over the proforma submitted to the permanent lender to obtain financing for
the new building.
-3-
<PAGE>
7. Contribution to Facade Repairs. There is added to the Decatur lease the
------------------------------
following new paragraph:
Lessee shall contribute pro rata to the cost of effecting repairs to the
facade of the Decatur Building which become necessary during the last two
of the five renewal periods described in Paragraph 5 hereof.
If the Lessor and Lessee fail to agree that repairs are necessary, the
question as to necessity shall be determined by arbitration in accordance
with the rules of the American Arbitration Society or its successor.
8. No Demolition. There is added to an Decatur Lease the following new
-------------
paragraph:
Subject to the provisions of Paragraph 12 hereof relating to damage or
destruction by casualty, Lessor agrees to refrain from demolition of the
leased premises during the original term hereof or any renewal thereof.
9. Salvage. There is added to the Decatur Lease the following new
-------
paragraph:
Lessee shall salvage and set aside for Lessor all railings and posts
located on the stairs of the leased premises and removed by Lessee in
connection with construction of tenant improvements in the Basement.
10. Parking. There is added to the Decatur Lease the following new
-------
paragraph:
Pay 'n Save will have the option to obtain ten automobile parking spaces in
the new building at the prevailing monthly parking rates, as adjusted from
time to time this commitment is based upon the new building having 325
spaces available for monthly parking, as is currently planned. In the event
that the number of available monthly parking stalls must be reduced to
comply with and satisfy the City of Seattle, then the number of parking
stalls to be made available to Pay 'n Save will reduce pro rata. The
parking stalls to be provided to Pay 'n Save in the new building shall be
contiguous stalls; provided, in the event the designation of contiguous
stalls would,
-4-
<PAGE>
due to any rules or regulations of the City of Seattle, result in a
decrease of the total number of parking stalls permitted in the new
building, then such parking stalls may be non-contiguous stalls.
11. Remodeling of the Decatur Building Roof; Indemnity. LCF and Pay 'n
--------------------------------------------------
Save agree:
Pay 'n Save shall cooperate with the Venture in order to enable it to
comply with all requirements necessary to remodel the Decatur Building
roof. LCF shall use its best efforts to keep the temporary disturbance to
the Leased Premises caused by the repair to the roof and construction of
the new building to a minimum.
LCF shall upon the request of Pay 'n Save promptly repair and replace any
structural or nonstructual damage to the leased premises and/or Pay 'n Save
property, including leasehold improvements, caused by the remodeling of the
Decatur Building roof.
12. Condition. This lease amendment is subject to and contingent on Pay 'n
---------
Save and LCF executing a Lease termination agreement for the M & A Lease
satisfactory in form and substance to LCF.
13. Modification. Except as modified hereby, all covenants, terms and
------------
conditions of the Decatur Lease shall remain in full force and effect and be
binding on all parties thereto, their heirs, personal representatives,
successors and assigns.
LCF: LCF ASSOCIATES
By /s/ David C. Pinkerton
-------------------------------
PAY 'N SAVE: PAY 'N SAVE CORPORATION
By /s/ Calvin Hendricks
-------------------------------
-5-
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
THIS IS TO CERTIFY that on this 29 day of January, 1982, before me, the
undersigned, a notary public in and for the state of Washington duly
commissioned and sworn, personally appeared [SIGNATURE ILLEGIBLE] to me known
to be the [ILLEGIBLE] of LCF ASSOCIATES, a limited partnership that executed
the within and foregoing instrument, and acknowledged the said instrument to be
the free and voluntary act and deed of said corporation for the uses and
purposes therein mentioned, and on oath stated that he was authorized to execute
said instrument, and that the seal affixed is the corporate seal of said
corporation.
WITNESS my hand and official seal the day and year in this certificate
first above written.
---------------------------------------------
Notary public in and for the state of
Washington, residing at
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
THIS IS TO CERTIFY that on this 29 day of January, 1982, before me, the
undersigned, a notary public in and for the state of Washington duly
commissioned and sworn, personally appeared [SIGNATURE ILLEGIBLE] to me known
to be the [ILLEGIBLE] of PAY 'N SAVE CORPORATION, the corporation that
executed the within and foregoing instrument, and acknowledged the said
instrument to be the free and voluntary act and deed of said corporation for the
uses and purposes therein mentioned, and on oath stated that he was authorized
to execute said instrument, and that the seal affixed is the corporate seal of
said corporation.
WITNESS my hand and official seal the day and year in this certificate
first above written.
/s/ Peggy L. Pritehead
---------------------------------------------
Notary public in and for the state of
Washington, residing at King County
-6-
<PAGE>
LEASE AGREEMENT
(NUMBER 3)
(DECATUR BUILDING)
THIS LEASE AMENDMENT dated this __________ day of _______, 1982, is between
LCF ASSOCIATES, a Washington limited partnership ("LCF"), and PAY'N SAVE
CORPORATION, a Washington corporation ("Pay'n Save").
LCF is the Lessor and Pay'n Save is the Lessee under the lease (the
"Decatur Lease") dated June 15, 1976, and amendments dated April 20, 1981, and
January 29, 1982, pertaining to portions of certain real property located in
Seattle, Washington, and commonly known as the Decatur Building.
LCF desires to enter the basement of the Decatur Building for purposes of
repairing and stabilizing the "footings" of the Decatur Building in connection
with construction of a new building on the land formerly occupied by the M & A
Building.
In consideration of the mutual covenants and conditions contained herein
and in consideration of Pay'n Save permitting the contractor designated by
Lessor to enter a portion of the basement of the Decatur Building, LCF and Pay'n
Save agree as follows:
1. During the course of constructing its improvements to the Decatur
Building, Lessee installed a new sump system complete with pumps and electrical
control panels as well as modifications to the water system, hereafter "new
sewer facilities." Lessor will inspect the new sewer facilities during the next
30 days. Within 30 days from the date hereof, Lessor in its sole discretion
shall accept or reject the new sewer system in writing and shall inform Lessee
of its acceptance or rejection and if rejected its reasons therefor. The
Lessor's failure to accept or reject the new system within the 30-day period,
shall constitute acceptance. If Lessor rejects the new sewer facilities, Lessee
will bypass the new sewer facilities by replacing the sewer lines with new lines
of the same size as the old lines and in approximately the same places they were
before Lessee constructed the new sewer facilities. Lessor will be permitted to
examine the restoration work as it progresses. The restoration work shall be
completed within 120 days after the date hereof. When the restoration has been
completed and written notice thereof given to Lessor, Lessee shall have no
further responsibility for the sewer and water system supplying the Decatur
Building, except as may be provided in the Lease, and Lessor shall thereafter
continue to have responsibility for the sewer and water system in the manner
provided in the lease. Lessee shall not be required to make any changes in the
present rainwater drain system of the building.
<PAGE>
In the event Lessor accepts in writing the new sewer facilities,
Lessee shall by Bill of Sale transfer title to those facilities to Lessor and
upon delivery of the Bill of Sale Lessor shall have full responsibility for the
sewer and water systems as provided in the Lease, and Lessee shall have no
further responsibility for the sewer and water systems, except as provided for
in the Lease. Lessor shall, in accordance with the Lease, have access in and to
sewer, water and drainage systems and shall be free to make any and all changes
or alterations in said systems which it deems necessary to meet Lessor's
obligations under the Lease to supply sewer and water services to the leased
premises.
2. The freight elevator serving the Decatur Building shall continue to be
available for the joint use of Lessee and any persons or entities leasing all or
a portion of the space currently occupied by the Dynasty, French Invention, Tux
Shop, Scandia Down and Alderwood Vision but Lessee shall have the exclusive
right to control the use of the freight elevator provided Lessee agrees to
provide, at Lessee's sole cost and expense, such personnel as Lessee elects to
provide to handle the elevator at all times required herein and to make the
freight elevator and personnel available for all other tenants at reasonable
times to meet the reasonable needs of the said other occupants of the Decatur
Building during Lessee's business hours and upon notice given no later than
10:00 A.M. on the preceding Friday the elevator shall be made available on
Saturdays, in accordance with the terms and conditions of the leases for the
tenants involved. After execution hereof Lessee shall be liable and responsible
for the repair and maintenance of the freight elevator, but the same shall be
treated as a common area cost and Lessor will reimburse Lessee for costs in
excess of Lessee's pro rata share.
Lessee shall indemnify and hold Lessor harmless from and against all
liabilities, like obligations, losses, claims, damages, civil action, costs or
expense resulting from any personal injury or death to any person or any loss of
or damage to property occurring or alleged to have occurred within or about the
leased premises occurring as a result of the Lessee's use, control, repair or
maintenance of the freight elevator and loading dock areas as a result of any
negligent act or omission of Lessee or any officer, agent, or employee of Lessee
or its operating subsidiaries when acting within the scope of his or her
authority or guest, invitee, customer, or visitor of Lessee, or its operating
subsidiaries arising from the use and occupancy
-2-
<PAGE>
or condition of the leased premises and all costs and expenses and liabilities,
including, but not limited to, reasonable attorney fees incurred in connection
therewith but the foregoing provisions shall not be construed to make Lessee
responsible for injuries to third parties caused by negligence or other acts of
Lessor or any officer, agent, employee, guest, invitee, tenant or visitor of
Lessor.
3. That portion of the loading dock and storage area noted in red on
Exhibit A attached hereto and which is now occupied exclusively by Lessee, shall
remain in the exclusive occupancy of Lessee for the balance of the term of the
Lease, as extended, and Lessee shall waive its rights of joint occupancy of that
part of the loading dock south of the designated area, provided Lessee shall
insure that all tenants and occupants in the Decatur Building who have the right
to use the freight elevator shall have the right of access for ingress-egress
purposes over and across the freight elevator and loading dock area for loading
and unloading material. After execution hereof, Lessee shall be liable and
responsible for the repair and maintenance of the area described in Exhibit A as
a part of its leased premises.
4. LCF desires to enter the basement of the Decatur Building for purposes
of repairing and stabilizing the footings of the Decatur Building and
installation and preparation, if necessary, of the footings for construction of
the new building on the land formerly occupied by the M & A Building, which
entry and work, including removal of debris and all activities in connection
with Lessor's entry, is referred to hereafter as the "footing work." The
description of the work to be performed by Lessor, including the measures to be
taken to minimize damage to the leased premises and its contents, the lease
space to be occupied including, access areas to be used by Lessor to perform the
services described herein, and the time schedule setting forth when the work is
to commence and be terminated together with the hours to be worked are set out
on Exhibit B attached hereto and by this reference made a part hereof.
In connection with the footing work:
A. Lessor agrees to accomplish the footing work in the manner and
times set out in Exhibit B attached hereto and agrees to reimburse Lessee for
any damage to the leased premises, Lessee's property, Lessee's leasehold
improvements and any other property in the Decatur Building for which Lessee has
repair responsibility.
-3-
<PAGE>
B. Upon completion of the restoration work, Lessor will immediately
restore the leased premises, including Lessee's improvements, to the same
condition they were in prior to Lessor's entry on the premises to accomplish the
footing work.
C. Lessor will reimburse Lessee for all costs, losses and damages,
including increased maintenance and servicing expenses and repairs to equipment
proximately caused by the footing work.
D. Lessor will conduct all of the footing work in such a manner as
to minimize as much as reasonably possible inconvenience to Lessee, its
employees and invitees.
E. All debris and other materials from or related to the footing
work will be removed from the leased premises, including the elevators and
loading dock areas but excluding the enclosed areas occupied by Lessor, before
6:30 a.m. each morning.
F. Lessor agrees that during the period that Lessor is occupying a
portion of the lease space Lessee may provide security to protect Lessee's
premises. It is understood and agreed that the security to be provided by Lessee
will be a regular security service used by Lessee at its other locations. Lessor
shall reimburse Lessee for the additional costs incurred from use of the
security service. In addition, Lessor will reimburse Lessee for Lessee's costs
of moving and replacing Lessee's desks, files and other property which is
necessitated by Lessor's foundation work, not to exceed $1,500.00.
G. Lessor shall indemnify and hold Lessee harmless from and against
all liabilities, obligations, losses, claims, damages, civil actions, costs or
expenses resulting from any personal injury or death to any person or any loss
of or damage of property occurring or alleged to have occurred within or about
the Decatur Building as a result of the footing work and regardless of whether
or not it is a result of any negligent act or omission of Lessor or anyone
else. This indemnity and hold harmless includes the activities of Lessor and
anyone working through or under Lessor or any contractor or subcontractor of
either Lessor or anyone working through or under Lessor in connection with the
building arising out of any work described in this paragraph 4 herein, and all
costs, expenses and liabilities, including, but not limited to, reasonable
attorney fees incurred in connection herewith, but the foregoing provision shall
not be construed to make Lessor responsible for injuries to third parties caused
by the negligence or other act of
-4-
<PAGE>
Lessee or its operating subsidiaries or any officer, agent, employee, guest,
invitee, customer or visitor of Lessee or its operating subsidiaries.
H. Lessor shall pay Lessee the sum of $4,000.00 for the right of
entry given by Lessee to Lessor under this paragraph.
I. If by reason of any default or breach under this paragraph 4 by
Lessor or by Lessee, it becomes necessary to institute suit, or in the event the
Lessor or Lessee shall commence any action to interpret or enforce the terms of
this paragraph 4, the prevailing party in such suit or action shall be entitled
to recover, as part of any judgment, such amount as the court shall determine
reasonable as attorney's fees for the prevailing party in such suit, together
with taxable costs.
5. It is understood that with respect to the new building on the M & A
Building site Lessor through designated representatives will engage in
construction activities which may inconvenience Lessee and may request short-
term access in and to the leased premises for purposes relative to construction
of the new building. Such work may include, but is not limited to, the
installation of an oil separator in the sewer line and work on the third (3rd)
and forth (4th) floors for stabilizing the parking structure on the roof and
possible relocation of the central elevator machinery and in addition possible
duct work.
Lessor agrees to give Lessee reasonable notice in writing (addressed
to the attention of C. Hendricks and Verne Netzer) or any requested interruption
by Lessee's use of the leased premises or any requested short term intrusion on
the leased premises by Lessor, which notice shall include the same type of
information as set forth on Exhibit B above and will be relative to the
requested interruption or intrusion and work in connection therewith. Lessee
shall review such request and respond to Lessor and Sixth and Pike Associates,
attention Wayne Gaffney within ten days of the receipt thereof. If Lessor
agrees to provide Lessee with the same or equal covenants and agreements as
contained in Paragraph 4 A-I (except P. 4-H) above with respect to the requested
interruption or intrusion and work in connection therewith, Lessee shall not
unreasonably withhold consent thereto and shall make no charge therefor, except
costs, losses or damages incurred as a consequence thereof. Lessee shall have
adequate time to move its property or to make any arrangements necessary to
continue its business.
-5-
<PAGE>
6. Except as modified herein, all covenants, terms and conditions of the
lease as amended shall remain in full force and effect.
DATED this _____ day of May, 1982.
LCF ASSOCIATES
BY /s/ David C. Pinkerton
--------------------------
Its Agent
----------------------
BY __________________________
Its ______________________
PAY 'N SAVE CORPORATION
BY Calvin Hendricks
--------------------------
Its Exc V.P.
----------------------
BY Raymond Swanson
--------------------------
Its ______________________
-6-
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this day personally appeared before me David C. Pinkerton and
_________________, to me known to be the AGENT of LCF ASSOCIATES, a Washington
limited partnership, the partnership that executed the within and foregoing
instrument, and acknowledged the said instrument to be the free and voluntary
act and deed of said partnership, for the uses and purposes therein mentioned,
and on oath stated that they were authorized to execute said instrument on
behalf of the partnership.
WITNESS my hand and official seal hereto affixed on June 1, 1982.
Gloria C. Elizabeth
----------------------------------
Notary Public in and for the State
of Washington, residing at Seattle
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this day personally appeared before me Calvin Hendrictes and Raymon
----------------- ------
Swanson, to me known to be the Exec Vic. Pres and Sec, respectively, of PAY'N
- - ------- -------------- ---
SAVE CORPORATION, the corporation that executed the foregoing instrument, and
acknowledged said instrument to be the free and voluntary act and deed of said
corporation, for the uses and purposes therein mentioned, and on oath stated
that they were authorized to execute said instrument.
WITNESS my hand and official seal hereto affixed on June 1, 1982.
Dale & Krem
----------------------------------
Notary Public in and for the State
of Washington, residing at Seattle
-7-
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this day personally appeared before me M. LAMONT BEAN and RAYMOND C.
SWANSON, to me known to be the President and Secretary, respectively, of PAY'N
SAVE CORPORATION, the corporation that executed the foregoing instrument, and
acknowledged said instrument to be the free and voluntary act and deed of said
corporation, for the uses and purposes therein mentioned, and on oath stated
that they were authorized to execute said instrument.
WITNESS my hand and official seal hereto affixed on June 15, 1976.
/s/ William R. Freidlhoffer
----------------------------------
Notary Public in and for the State
of Washington, residing at Seattle.
-27-
<PAGE>
CONSENT BY MANAGEMENT COMMITTEE
The undersigned, representing at least 66-2/3% of the Management Committee
of LCF Associates, a Washington limited partnership, consent to and approve of
the leasing to Pay 'n' Save Corporation, a Washington corporation, of the real
property commonly known as the Decatur Building and M & A Building in Seattle,
Washington, more particularly described on Exhibit A attached hereto, for an
annual rental of not less than $ (A) and a term of not less than (A) .
------- ---------
We hereby designate David C. Pinkerton as our designated representative on
behalf of the limited partnership for the purpose of negotiating, signing and
executing any and all documents relating to the leasing of the above-described
property.
EXECUTED this 1st day of April, 1976.
_____________________________________
John Walsh
/s/ Robert D. Watt
-------------------------------------
Robert D. Watt
/s/ Patricia O. Wright
-------------------------------------
Patricia O. Wright
/s/ David C. Pinkerton
-------------------------------------
David C. Pinkerton
/s/ Charles H. Badgley
-------------------------------------
Charles H. Badgley
** (A) Per the lease draft dated 7-16-76
<PAGE>
EXHIBIT B
SITE PLAN
B-1
<PAGE>
[SITE PLAN APPEARS HERE]
<PAGE>
EXHIBIT C
PERMITTED EXCEPTIONS
C-1
<PAGE>
SCHEDULE B
POLICY NO. 331042-5
EXCEPTIONS FROM COVERAGE
THIS POLICY DOES NOT INSURE AGAINST LOSS OR DAMAGE (AND THE COMPANY WILL NOT PAY
COSTS, ATTORNEY'S FEES OR EXPENSES) WHICH ARISE BY REASON OF:
PART ONE:
1. TAXES OR ASSESSMENTS WHICH ARE NOT SHOWN AS EXISTING LIENS BY THE
RECORDS OF ANY TAXING AUTHORITY THAT LEVIES TAXES OR ASSESSMENTS ON
REAL PROPERTY OR BY THE PUBLIC RECORDS.
2. ANY FACTS, RIGHTS, INTEREST, OR CLAIMS WHICH ARE KNOWN TO THE LANDLORD
AND NOT SHOWN BY THE PUBLIC RECORDS BUT WHICH COULD BE ASCERTAINED BY
AN INSPECTION OF SAID LAND.
3. EASEMENTS, CLAIMS OF EASEMENTS OR ENCUMBRANCES WHICH ARE NOT SHOWN BY
THE PUBLIC RECORDS.
4. DISCREPANCIES, CONFLICTS IN BOUNDARY LINES, SHORTAGE IN AREA,
ENCROACHMENTS, OR ANY OTHER FACTS WHICH A CORRECT SURVEY WOULD
DISCLOSE, AND WHICH ARE NOT SHOWN BY PUBLIC RECORDS.
6. ANY LIEN, OR RIGHT TO A LIEN, FOR SERVICES, LABOR OR MATERIAL
THERETOFORE OR HEREAFTER FURNISHED, TO THE LANDLORD, IMPOSED BY LAW
AND NOT SHOWN BY THE PUBLIC RECORDS.
7. DEFECTS, LIENS, ENCUMBRANCES, ADVERSE CLAIMS OR OTHER MATTERS, IF ANY,
CREATED, FIRST APPEARING IN THE PUBLIC RECORDS OR ATTACHING SUBSEQUENT
TO THE EFFECTIVE DATE HEREOF BUT PRIOR TO THE DATE THE PROPOSED
INSURED ACQUIRES OF RECORD FOR VALUE THE ESTATE, INTEREST OR MORTGAGES
THEREON COVERED BY THIS COMMITMENT, EXCLUDING ANY MATTERS RELATING TO
THE ERNST BANKRUPTCY PROCEEDINGS.
PAGE 2
<PAGE>
SCHEDULE B
PART TWO: POLICY NO. 331042-5
1. GENERAL TAXES AND SPECIAL CHARGES, IF ANY, FOR 1998. THE FIRST HALF IS DUE
BY APRIL 30TH AND THE SECOND HALF BY OCTOBER 31ST.
ASSESSED VALUE OF LAND: $4,320,000.00
ASSESSED VALUE OF IMPROVEMENTS: $6,304,600.00
TAX ACCOUNT NO.: 197570-0125-04
<TABLE>
<CAPTION>
CHARGES BILLED PAID UNPAID
------- ------ ---- ------
<S> <C> <C> <C>
GENERAL TAX $ 129,175.37 64,587.69 64,587.69
SURFACE WATER $ 232.50 116.25 116.25
CONSERVATION $ 5.00 2.50 2.50
TOTAL NOW PAYABLE $64,706.43
-----------------
</TABLE>
(IF PAYMENT IS LATE, INTEREST AND PENALTY WILL BE ADDED.)
2. ASSESSMENT BY KING COUNTY
ORIGINAL AMOUNT: $16,596.39, PLUS INTEREST AT 8.000%
ORIGINAL NUMBER OF INSTALLMENTS: 20
NUMBER OF INSTALLMENTS PAID: 5
NUMBER OF INSTALLMENTS DELINQUENT: 0
LOCAL IMPROVEMENT DISTRICT NO.: 1
FILING DATE: FEBRUARY 13, 1991
NEXT PAYMENT DUE: MARCH 18, 1998
IMPROVEMENT: METRO TUNNEL
ACCOUNT NO.: 0440-019757-00126-04
3. DEED OF TRUST AND THE TERMS AND CONDITIONS THEREOF:
GRANTOR: PIKE STREET DELAWARE, INC.
TRUSTEE: DWTR&J CORP.
BENEFICIARY: THE BANK OF TOKYO-MITSUBISHUI, LTD.
ORIGINAL AMOUNT: $36,000,000.00
DATED: MAY 2, 1997
RECORDED: MAY 6, 1997
RECORDING NO.: 9705060556
(CONTINUED)
PAGE 3
<PAGE>
SCHEDULE B - PART II CONT.
POLICY NO. 331042-5
4. ASSUMPTION AND ASSIGNMENT OF LEASE:
ASSIGNOR: ERNST HOME CENTER, INC., A DELAWARE CORPORATION
ASSIGNEE: FADCO, LLC, A DELAWARE LIMITED LIABILITY COMPANY
DATED: MARCH 24, 1998
RECORDED: APRIL 16, 1998
RECORDING NO.: 9804160363
5. AGREEMENT AND THE TERMS AND CONDITIONS THEREOF
BETWEEN: LCF ASSOCIATES, A WASHINGTON LIMITED PARTNERSHIP
AND: SIXTH & PIKE ASSOCIATES, A WASHINGTON LIMITED PARTNERSHIP
DATED: APRIL 8, 1982
RECORDED: APRIL 8, 1982
RECORDING NO.: 8204080464
PURPOSE: DEVELOPMENT AND PARKING RIGHTS AGREEMENT
SAID INSTRUMENT WAS MODIFIED BY AGREEMENT
DATED: AUGUST 13, 1982
RECORDED: AUGUST 24, 1982
RECORDING NO.: 8208240318
6. AGREEMENT AND THE TERMS AND CONDITIONS THEREOF
BETWEEN: LCF ASSOCIATES, A WASHINGTON LIMITED PARTNERSHIP
AND: SIXTH & PIKE ASSOCIATES, A WASHINGTON LIMITED PARTNERSHIP
DATED: AUGUST 13, 1982
RECORDED: AUGUST 24, 1982
RECORDING NO.: 8208240319
PURPOSE: ESTOPPEL AGREEMENT
7. EASEMENT AND CONDITIONS CONTAINED IN DOCUMENT:
RECORDED: AUGUST 24, 1982
RECORDING NO.: 8208240320
FOR: A PERPETUAL NON-EXCLUSIVE EASEMENT UNDER, THE PROPERTY DESCRIBED
HEREIN FOR THE PERMANENT FOUNDATION FOOTINGS (CAISSONS) REQUIRED FOR
CONSTRUCTION OF THE SIXTH & PIKE BUILDING
AFFECTS: SOUTHEASTERLY 6 FEET EXTENDING TO A DEPTH OF 63 FEET FROM THE
SURFACE OF SAID LOT 7
(CONTINUED)
PAGE 4
<PAGE>
SCHEDULE B - PART II CONT.
POLICY NO. 331042-5
8. AGREEMENT AND THE TERMS AND CONDITIONS THEREOF
BETWEEN: SUMMIT COMMUNICATIONS
AND: LCF ASSOCIATES
DATED: JUNE 28, 1994
RECORDED: JULY 29, 1994
RECORDING NO.: 9407292383
PURPOSE: CABLE TV RIGHT OF ENTRY AND OPERATING AGREEMENT
9. TERMS, CONDITIONS AND PROVISIONS OF CITY OF SEATTLE ORDINANCE NO. 111635
VACATING PORTIONS OF SIXTH AVENUE AND ALLEY RECORDED UNDER RECORDING
NO. 8405080995.
10. TERMS, CONDITIONS AND PROVISIONS OF CITY OF SEATTLE ORDINANCE NO. 112275
RELATING TO HISTORIC PRESERVATION OF THE DECATUR BUILDING, RECORDED UNDER
RECORDING NO. 8508060574.
END OF SCHEDULE B
PAGE 5
<PAGE>
EXHIBIT D
---------
NON-DISTURBANCE, ESTOPPEL AND ATTORNMENT AGREEMENT
THIS NON-DISTURBANCE, ESTOPPEL AND ATTORNMENT AGREEMENT ("Agreement") is
entered into as of this ______ day of _______________, 1998 (the "Execution
Date"), between L.C.F. ASSOCIATES, a Washington limited partnership ("Prime
Landlord"), and FOCAL COMMUNICATIONS CORPORATION OF WASHINGTON, a Delaware
corporation ("Subtenant").
RECITALS
--------
A. Prime Landlord and Pay `N Save Corporation, a Washington corporation
("Prime Tenant"), entered into a lease agreement dated June 15, 1976 (the
"Original Lease") for certain space in the Decatur Building in Seattle,
Washington of which the Demised Premises (as defined hereinafter) is a part (the
"Building").
B. The Original Lease has been modified by the Lease Amendment and
Understanding dated April 20, 1981, the Lease Amendment dated January 29, 1982,
and the Lease Amendment (Number 3) dated May __, 1982. (collectively, the
"Lease Amendments").
C. The Original lease and the Lease Amendments are collectively referred
to herein as the "Prime Lease" and are attached hereto as Exhibit "A". The
premises leased thereunder are referred to herein as the "Master Premises".
Except as otherwise provided, defined terms shall have the same meaning as such
terms under the Prime Lease.
D. On or about October 27, 1989, Ernst Home Center, Inc., a Delaware
corporation ("Ernst"), succeeded to all of the right, title and interest of the
original Prime Tenant under the Prime Lease, pursuant to that certain Assignment
of Lease dated October 27, 1989. By the Assumption and Assignment of Lease
dated March 24, 1998 and recorded April 16, 1998 as document No. 980416363 in
the records of the County of King, State of Washington, all right, title and
interest of Ernst under the Prime Lease was be assigned to FADCO, LLC, a
Delaware limited liability company ("Sublandlord").
E. Sublandlord and Subtenant have entered into that certain sublease
("Sublease") for approximately twenty thousand (20,000) square feet
of the approximately one hundred thousand (100,000) square foot premises
(the "Demised Premises").
F. As a condition to Subtenant entering into the Sublease, Prime Landlord
and Subtenant must execute this Agreement.
In consideration of the foregoing recitals, the mutual covenants
hereinafter set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, intending to be
legally bound, agree as follows:
D-1
<PAGE>
AGREEMENT:
---------
1. Non-Disturbance and Attornment. If the Prime Lease is terminated by
------------------------------
Prime Landlord due to a default by Sublandlord under the Prime Lease, (i)
Subtenant's occupancy of the Premises shall not be disturbed by the Prime
Landlord, (ii) Subtenant shall succeed to all of the interests of Sublandlord
under the Prime Lease with respect only to the Premises, and Subtenant will be
bound to Prime Landlord under all of the terms, covenants and conditions of the
Prime Lease except as modified herein and by the Sublease, for the balance of
the term thereof remaining (including any subsequent renewals exercised by
Subtenant) with the same force and effect as if Subtenant were the Lessee under
the Prime Lease, and (iii) Subtenant will attorn to Prime Landlord as its
landlord, said attornment to be effective and self-operative immediately upon
Subtenant succeeding to the interest of Sublandlord under the Prime Lease
without the execution of any further instruments on the part of the parties
hereto. The respective rights and obligations of Subtenant and Prime Landlord
upon such attornment, to the extent of the then remaining balance of the term of
the Prime Lease, shall be and are the same as now set forth therein, it being
the intention of the parties to incorporate the Prime Lease in this Agreement by
reference with the same force and effect as if set forth at length herein.
2. Subtenant and Prime Landlord Not Bound by Certain Acts of Sublandlord.
---------------------------------------------------------------------
If Subtenant succeeds to the interest of Sublandlord under the Prime Lease as
aforesaid, (i) Subtenant will not be liable to Prime Landlord for any act or
omission, including failure to pay rent, of Sublandlord, nor will Subtenant be
subject to any claims or defenses which Prime Landlord might have against
Sublandlord under the Prime Lease and (ii) Prime Landlord will not be liable to
Subtenant for any act or omission of Sublandlord under the Sublease.
3. Prime Landlord Estoppel. Prime Landlord makes the following
-----------------------
representations:
a. Prime Landlord delivered possession of the Demised Premises to
Sublandlord under the Prime Lease.
b. Sublandlord has fulfilled all of its duties under the Prime Lease
and is not in default under the Prime Lease.
c. The Prime Lease is in full force and effect and has not been
modified, altered or amended, except as set forth herein.
d. Prime Landlord has no claims or defenses to enforcement of the
Prime Lease.
e. Prime Landlord has approved all assignments and amendments of the
Prime Lease referred to in the Recitals.
f. Prime Landlord consents to the Sublease.
g. The primary term of the Prime Lease expires April 30, 2012.
D-2
<PAGE>
4. Additional Covenants.
--------------------
a. Prime Landlord will simultaneously provide Subtenant with copies of
all notices of default on the part of Sublandlord under the Prime Lease, and if
Prime Landlord intends to use the default as a basis for termination of the
Prime Lease. If Sublandlord does not cure such default within the time provided
in the Prime Lease, Prime Landlord hereby grants to Subtenant the option to cure
the default within an additional ten (10) days from the date Sublandlord's
applicable cure period expires.
b. Prime Landlord acknowledges that Sublandlord, as Lessee under the
Prime Lease, has certain rights and remedies in the event of a default by Prime
Landlord. In the event Sublandlord has the right to cure a default by Prime
Landlord under the Prime Lease, Prime Landlord will accept the cure of such
default by Subtenant and Sublandlord may exercise its rights of offset under the
Prime Lease.
c. Prime Landlord consents to Subtenant's signs and alterations, as
set forth in the Sublease and reasonable use of the Demised Premises.
d. Prime Landlord will deliver directly to Subtenant (with copies to
Sublandlord) notices of any Common Area costs and expenses, real property taxes,
insurance premiums and all other additional rent or charges payable by
Sublandlord as Lessee under the Prime Lease, and Prime Landlord agrees to accept
payment directly from Subtenant therefor as and when such amounts are required
to be paid by Sublandlord under the Prime Lease.
e. Prime Landlord acknowledges and agrees that its consent shall not
be required for any license agreement or "co-location agreement" between
Subtenant and any telecommunications customer(s) of Subtenant for the purpose of
permitting a telecommunications connection so long as (i) each of Subtenant's
customers agrees in writing to comply with all obligations of Subtenant under
the Sublease to the extent relating to the portion of the Demised Premises in
question and (ii) each such license or co-location agreement is in writing and
is consistent with the provisions of the Sublease.
f. Prime Landlord agrees that so long as Prime Landlord owns the
Building, Subtenant shall have quiet and peaceful possession thereof as against
any adverse claim of Prime Landlord or any party claiming under Prime Landlord.
g. Prime Landlord hereby acknowledges its maintenance obligations of
certain common areas of the Building as set forth in Article 22 of the Prime
Lease.
5. Successors and Assigns. This Agreement and each and every covenant,
----------------------
agreement and other provision hereof shall be binding upon and shall insure to
the benefit of the parties hereto and their successors and assigns.
6. Choice of Law. This Agreement is made and executed under and in all
-------------
respects is to be governed and construed by the laws of the State of Washington.
7. Captions and Headings. The captions and headings of the various
---------------------
sections of this
D-3
<PAGE>
Agreement are for convenience only and are not to be construed as confining or
limiting in any way the scope or intent of the provisions hereof. Whenever the
context requires or permits, the singular and the masculine, feminine and neuter
shall be freely interchangeable.
8. Notices. Any notice which any party hereto may desire or may be
-------
required to give to any other party shall be in writing and the mailing thereof
by certified mail or by a nationally recognized overnight courier service, to
the addresses as set forth above, or to such other places either party may
subsequently by notice in writing designate, shall constitute service of notice
hereunder.
IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to
be executed as of the date first above written.
Prime Landlord:
L.C.F. ASSOCIATES,
a Washington limited partnership
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Subtenant:
FOCAL COMMUNICATIONS CORPORATION
OF WASHINGTON,
a Delaware corporation
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
D-4
<PAGE>
STATE OF______________________)
)ss.
COUNTY OF_____________________)
The foregoing instrument was acknowledged before me this _____ day of
___________, 199___, by ________________________ the _____________________ of
______________________________________ on behalf of Prime Landlord.
----------------------------------------
Notary Public
STATE OF______________________)
)ss.
COUNTY OF_____________________)
The foregoing instrument was acknowledged before me this _____ day of
___________, 199___, by ______________________ the ______________________ of
________________________________________ on behalf of Subtenant.
-----------------------------------------
Notary Public
D-5
<PAGE>
Exhibit A
Sublease
--------
D-6
<PAGE>
Exhibit E
(Intentionally deleted)
<PAGE>
Exhibit F
SUBTENANT'S WORK
<PAGE>
Exhibit G
CONSTRUCTION PROVISIONS
-----------------------
I. SUBTENANT'S WORK.
----------------
A. Plans and Specifications.
------------------------
1. Attached as Schedule 1 to this Exhibit G are Subtenant's
preliminary plans and specifications ("Preliminary Plans") which describe that
certain work to be performed by Subtenant to the Building and the Demised
Premises ("Subtenant's Work").
2. Within forty-five (45) days after the Execution Date, Subtenant,
at its sole cost and expense, shall cause its architect and civil engineer to
prepare and deliver to Sublandlord for its approval working plans and
specifications for the construction of Subtenant's Work (the "Working Plans") in
as much detail as is reasonably required for Sublandlord to determine the scope
and quality of Subtenant's Work. The Working Plans shall be consistent with the
Preliminary Plans. Within ten (10) business days after receipt of the Working
Plans, Sublandlord shall either approve the Subtenant's Working Plans or deliver
to Subtenant its specific objections to the Working Plans together with its
proposed solution to each objection. Sublandlord's approval of the Working
Plans shall not be unreasonably withheld, conditioned or delayed, and shall be
approved to the extent that such Working Plans are consistent with the
Preliminary Plans and provide for improvements of substantially the same quality
and type as those constructed in Subtenant's prototypical locations.
3. If Subtenant and Sublandlord are unable to resolve Sublandlord's
and Prime Landlord's objections to the Working Plans or the Final Plans
(including, but not limited to, Subtenant's requirements for (i) its HVAC
systems and equipment and (ii) its generator for its electrical systems, as
reasonably required for Subtenant to conduct its business in the Demised
Premises) within thirty (30) days after Subtenant has received notice of the
objections (with both parties agreeing to attempt to resolve such differences in
good faith), Sublandlord or Subtenant shall have the right, within thirty (30)
days thereafter, to terminate this Sublease immediately by giving notice of such
termination to the other.
4. As soon as practicable after Sublandlord's approval of the Working
Plans, Subtenant, at its sole cost and expense, shall prepare and deliver to
Sublandlord final plans and specifications, based on the approved Preliminary
Plans and Working Plans ("Final Plans") covering the items of construction and
improvements that were included in the approved Preliminary Plans and the
approved Working Plans ("Subtenant's Work").
5. Subtenant shall as soon as reasonably practicable (i) submit the
Final Plans to the appropriate governmental agencies; (ii) seek all necessary
approvals and permits; (iii) pay all necessary fees incidental to Subtenant's
Work; and (iv) furnish Sublandlord such evidence thereof as is satisfactory to
Sublandlord.
6. Subtenant agrees to process any and all applications required from
the city, county and any other governmental authority necessary to obtain the
permits required to commence Subtenant's Work in accordance with the Final
Plans.
G-1
<PAGE>
B. Standard.
--------
Subtenant, using its contractor or contractors, shall construct
Subtenant's Work in a good and workmanlike manner, in accordance with the
approved Final Plans. At all times until Subtenant's Work shall be completed,
Prime Landlord and Sublandlord shall have the right to enter upon the Demised
Premises for the purpose of inspecting the same. All Subtenant's Work shall
remain a part of the Demised Premises or the Common Areas, as is appropriate,
unless and to the extent directed otherwise and (except as otherwise provided in
Paragraph 10.3) be surrendered at the end of the Term or earlier termination of
this Sublease, at which time the same shall become the property of Sublandlord
by Sublandlord.
C. Costs and Expenses.
------------------
Except as otherwise provided in Paragraph 5.3, the entire cost and
expense of Subtenant's Work shall be borne and paid by Subtenant, and Subtenant
shall hold and save Sublandlord and the Demised Premises harmless from any
liability whatsoever on account thereof. Before the commencement of Subtenant's
Work, Subtenant shall give to Sublandlord written notice thereof specifying the
nature and location of the intended work and the expected dates of commencement
thereof. Subtenant shall not suffer or permit any mechanics' liens or any other
claims or demands arising from Subtenant's Work to be enforced against the
Demised Premises or any part thereof, and shall hold Sublandlord free and
harmless from any liability for any such liens, claims or demands, together with
all costs and expenses in connection therewith. Notwithstanding anything to the
contrary contained herein, if Subtenant shall, in good faith, contest the
validity of any lien, claim or demand, then Subtenant shall, at its expense,
defend itself, Sublandlord and Prime Landlord against the same and shall pay and
satisfy any final adverse judgment that may be rendered therein before the
enforcement thereof against Sublandlord, Prime Landlord, or the Demised Premises
or any part thereof, and Subtenant shall name Sublandlord and Prime Landlord as
additional obligee under a surety bond in the amount of said lien, claim or
demand to be furnished by Subtenant in the contest proceedings.
D. Building Code Compliance and Nonresponsibility of Sublandlord.
-------------------------------------------------------------
Sublandlord will not check Subtenant drawings for building code
compliance. Approval of the Final Plans by Sublandlord is not a representation
that the drawings are in compliance with the requirements of governing
authorities, and it shall be Subtenant's responsibility to meet and comply with
all federal, state, and local code requirements. Approval of the Final Plans
does not constitute assumption of responsibility by Sublandlord or its architect
for their accuracy, sufficiency or efficiency, and Subtenant shall be totally
responsible for such matters.
II. CONSTRUCTION OF SUBTENANT'S WORK.
--------------------------------
A. Commencement of Construction.
----------------------------
Subtenant shall commence construction of Subtenant's Work in
accordance with the provisions of this Sublease and shall carry such
construction to completion with all due diligence.
G-2
<PAGE>
The failure of Subtenant to comply with procedures and schedules set forth in
this Exhibit G, or to commence or complete the construction of the Demised
Premises as required, shall have no effect on the commencement of Minimum
Monthly Rent.
B. General Requirements.
--------------------
1. Subtenant shall deliver to Sublandlord, at least five (5) days
prior to the commencement of construction, the following information:
a. The names and addresses of the general, mechanical and
electrical contractors Subtenant intends to engage in the
construction of the Subtenant's Work;
b. The date on which Subtenant's construction work will
commence, together with the estimated dates of completion of
Subtenant's construction and fixturing work;
c. Evidence satisfactory to Sublandlord of compliance by
Subtenant with the insurance requirements hereinafter set
forth;
d. Prior to the commencement of Subtenant's Work, Subtenant
shall, at its sole cost and expense, obtain and, if required
by Sublandlord, cause its contractor to obtain, and keep in
full force throughout the construction of Subtenant's Work:
(1) Comprehensive liability insurance as provided in
Paragraph 11.1;
(2) Worker's compensation coverage as provided in Paragraph
11.1; and
(3) "All risks" builders' risk insurance in an amount
acceptable to Sublandlord.
Such insurance shall comply in all respects with and be
subject to the policy form requirements set forth in
Paragraph 11.4; and
e. An itemized statement of estimated construction costs,
including architectural, engineering and contractors' fees.
2. All contractors engaged by Subtenant shall be bondable, licensed
by the State of Washington, possess good labor relations, be capable of
performing quality workmanship and shall work in harmony with Sublandlord's
general contractor and other contractors on the job. All work shall be
coordinated with the general project work.
3. Construction shall comply in all respects with applicable Laws.
All required permits, approvals, licenses, authorizations and other permits in
connection with the construction
G-3
<PAGE>
and completion of Subtenant's Work including, without limitation, building
permits and conditional use permits, shall be obtained and all fees (both one-
time and recurring) required in connection with the construction and completion
of Subtenant's Work, without limitation, building and conditional use permit
fees, school fees and all other fees, whether similar or dissimilar, shall be
paid for by Subtenant. Sublandlord shall cooperate in obtaining such permits, to
the extent necessary, provided such cooperation is at no expense to Sublandlord.
4. Subtenant shall apply and pay for all utility services related to
Subtenant's Work.
5. Subtenant shall cause its contractor to provide warranties for
not less than one year against defects in workmanship, materials and equipment.
6. Subtenant's Work shall be subject to the inspection of
Sublandlord and its supervisory personnel.
C. Sublandlord's Right to Perform Work.
-----------------------------------
Sublandlord shall have the right, but not the obligation, to perform,
on behalf of and for the account of Subtenant, subject to reimbursement of the
cost thereof by Subtenant, any and all of Subtenant's Work which Sublandlord
determines, in its reasonable discretion, should be performed immediately and on
an emergency basis for the best interest of the Demised Premises including,
without limitation, work which pertains to structural components, mechanical,
sprinkler and general utility systems, roofing and removal of unduly accumulated
construction material and debris.
D. Temporary Facilities During Construction.
----------------------------------------
Subtenant shall provide and pay for all temporary utility facilities
and the removal of debris, as necessary and required in connection with the
construction of Subtenant's Work. Storage of Subtenant's contractors'
construction materials, tools, equipment and debris shall be confined to the
Demised Premises and in areas which may be designated for such purposes by
Sublandlord. In no event shall any material or debris be stored in the malls or
service and exit corridors.
E. As-Built Drawings.
------------------
Subtenant shall cause "As-Built Drawings" to be delivered to
Sublandlord and/or Sublandlord's representative no later than thirty (30) days
after the completion of Subtenant's Work.
III. ALTERATIONS.
-----------
Subtenant shall not perform any Alterations without the prior written
approval of Sublandlord, except as otherwise provided in Paragraph 10.3 of this
Sublease. Approval shall be obtained by using the procedure set forth in this
Exhibit G; provided, however, the initial date for the delivery of the plans and
specifications shall not be thirty (30) days from the date of this Sublease but
shall instead be sixty (60) days prior to the date Subtenant desires to commence
the Alterations.
G-4
<PAGE>
The plans and specifications shall consist of the appropriate drawings in
relation to the intended Alterations.
G-5
<PAGE>
Schedule 1
----------
[Subtenant's Preliminary Plans]
<PAGE>
EXHIBIT H
---------
AFTER RECORDING MAIL TO:
Michele A. Jenkins, Esq.
Pircher, Nichols & Meeks
900 North Michigan Avenue
Suite 1200
Chicago, Illinois 60611
MEMORANDUM OF SUBLEASE
FADCO, LLC, a California limited liability company ("Sublandlord")
FOCAL COMMUNICATIONS CORPORATION OF WASHINGTON, a Delaware corporation
("Subtenant")
See Page 2 for additional names.
[insert short property description]
- - --------------------------------------------------------------------------------
(Space Above For Recorder's Use)
H-1
<PAGE>
MEMORANDUM OF SUBLEASE
THIS MEMORANDUM OF SUBLEASE is entered into as of the ___ day of
________________, 1998, between FADCO, LLC, a California limited liability
company ("Sublandlord"), and FOCAL COMMUNICATIONS CORPORATION OF WASHINGTON, a
Delaware corporation ("Subtenant").
1. Sublandlord leases to Subtenant and Subtenant leases from Sublandlord
that certain improved real property located at 1511 6th Avenue, Floor 3,
Seattle, Washington 98101 (the "Demised Premises") as more particularly
described on Exhibit A attached hereto and made a part hereof, pursuant to the
---------
terms of that certain Sublease between Sublandlord and Subtenant dated
________________, 1998, (the "Sublease"). The Demised Premises are more
particularly described in the Sublease. Defined terms used herein have the same
meaning ascribed to such terms as set forth in the Sublease, except as otherwise
provided.
2. Sublandlord leases the Demised Premises pursuant to the terms of that
certain Lease Agreement dated June 15, 1976 between L.C.F. Associates, as
landlord, and Pay `N Save Corporation, as tenant, as amended by the Lease
Amendment and Understanding dated April 20, 1981, as amended by the lease
Amendment dated January 29, 1982, and as amended by Lease Amendment (Number 3)
dated May ___, 1982. [insert recording information of Prime Lease Memorandum]
3. The initial term of the Sublease commences on the Commencement Date and
expires on the last day of the 120th full calendar month thereafter, unless
sooner terminated pursuant to the Sublease.
4. Subtenant has one (1) option to extend the term of the Sublease for
five (5) years on the terms set forth in the Sublease, as same may be extended
in accordance with the terms of the Sublease.
5. Pursuant to Paragraph 7.2 of the Sublease, Sublandlord grants to
Subtenant those various nonexclusive rights and easements to use the Common
Areas which were granted to Sublandlord under the Prime Lease.
6. This Memorandum of Sublease is subject to all of the terms and
conditions set forth in Sublease, which Sublease is incorporated herein by
reference and made a part hereof, as though copied verbatim herein. In the
event of a conflict between the terms and conditions of this Memorandum of Lease
and the terms and conditions of the Sublease, the terms and conditions of the
Sublease shall prevail.
H-2
<PAGE>
Executed as of the date first above written.
Sublandlord: Subtenant:
FADCO, LLC, FOCAL COMMUNICATIONS
a California limited liability CORPORATION OF WASHINGTON, a
company Delaware corporation
By: Alamo Group, III, LLC,
a California limited liability By
company --------------------------
Its Member Name:
-----------------------
Title:
----------------------
By:
----------------------
Donald F. Gaube,
President
H-3
<PAGE>
ACKNOWLEDGMENT
(SUBTENANT)
STATE OF
----------------------
SS
COUNTY OF
----------------------
I do hereby certify that on this ___ day of __________, 1998, before me,
_________________________, a notary public in and for the County and State
aforesaid, and duly commissioned, personally appeared _________________________,
known to me to be the _______________ of FOCAL COMMUNICATIONS CORPORATION OF
WASHINGTON, a Delaware corporation who, being by me duly sworn, did depose and
say that he resides in _____________________________________________; that he is
the____________________ of FOCAL COMMUNICATIONS CORPORATION OF WASHINGTON, the
corporation described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
the corporate seal of said corporation; that, on behalf of said corporation and
by authority of its bylaws, he signed, sealed and delivered said instrument for
the uses and purposes therein set forth, as its and his free and voluntary act;
and that he signed his name thereto by like order. In Witness Whereof, I have
hereunto set my hand and affixed my official seal the day and year in this
certificate first above written.
-----------------------------------
Notary Public
Name:
------------------------------
Residing at:
-----------------------
-----------------------
My Commission expires:
-----------------------------------
<PAGE>
ACKNOWLEDGMENT
(SUBLANDLORD)
STATE OF CALIFORNIA )
)
COUNTY OF CONTRA COSTA )
On _________________, 1998, before me, __________________________,
personally appeared _____________________, personally known to me as the
person whose name is subscribed to the within instrument and acknowledged to me
that he executed the same in his authorized capacity, and that by his signature
on the instrument the person or the entity upon behalf of which the person
acted, executed the instrument.
WITNESS my hand and official seal.
Signature (Seal)
--------------------------------
<PAGE>
ACKNOWLEDGMENT
(SUBLANDLORD)
STATE OF CALIFORNIA )
)
COUNTY OF CONTRA COSTA )
On _________________, 1998, before me, __________________________,
personally appeared _____________________, personally known to me as the
person whose name is subscribed to the within instrument and acknowledged to me
that he executed the same in his authorized capacity, and that by his signature
on the instrument the person or the entity upon behalf of which the person
acted, executed the instrument.
WITNESS my hand and official seal.
Signature (Seal)
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EXHIBIT 10.3
LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease"), made as of this 31st day of August,
1998 by and between Ten Berg Limited Partnership, a Michigan limited partnership
whose address is 25200 Telegraph Road, Suite 410, Southfield, Michigan 48034
("Landlord"), and Focal Communications Corporation of Michigan, a Delaware
corporation, with offices at 200 N. LaSalle, #800, Chicago, Illinois 60601
("Tenant").
1. LEASED PREMISES
(a) Landlord is the owner of certain premises and parking areas (the
Tenant's use of a portion of the parking areas being the subject of Paragraph 27
hereof) situated at 23800 West Ten Mile Road in the City of Southfield, Oakland
County, Michigan and currently known as the "Vanguard Center" (such building
being hereinafter referred to as the "Building" and such owner being hereinafter
referred to as the "Landlord." The Building and Land have certain interior and
exterior common areas hereinafter referred to as the "Common Areas"). The name
of the Building shall not be changed to that of a local or long distance
telephone company during the term of this Lease. The legal description of said
property is set forth in Exhibit A, which is attached hereto and made a part
hereof. The Building is not contained within a FEMA 100-year flood plain. In
consideration of the rents to be paid and the covenants and agreements to be
performed by Tenant, Landlord hereby leases unto Tenant and Tenant hereby leases
from Landlord the following portion of the Building in which the demised
premises are located:
Suite 100 containing approximately twenty thousand (20,000) usable
square feet (subject to final measurement) totaling approximately
twenty two thousand six hundred (22,600) rentable square feet (subject
to final measurement) as calculated in paragraph 1(b) below, located
on the first floor of the building, as shown on the floor plan
attached hereto as Exhibit B (the "Leased Premises"), together with
the right to use the parking and common facilities which may be
furnished by Landlord, in common with Landlord and the tenants and
occupants (their agents, employees, customers and invites) of the
Building in which the Leased Premises are located.
Landlord shall have the right to make reasonable rules and regulations governing
the use of the parking and common facilities and to alter and modify these
facilities from time to time. Landlord shall not relocate Tenant during the term
hereof, or during any extended term hereof.
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(b) Rentable Area of the Leased Premises. If this Lease is for an entire
floor of the Building, the Rentable Area shall be computed by measuring to the
inside finished surface of the dominant portion of the permanent outer building
walls, excluding any major vertical penetrations of the floor; provided,
however, no deductions shall be made for columns and projections necessary to
the Building. If this Lease is for less than an entire floor of the Building,
the Rentable Area of the suite on the floor shall be computed by multiplying the
Usable Area, as hereinafter defined, of that suite by 1.13. The Usable Area of
the suite shall be computed by measuring to the finished surface of the office
side of the corridor and other permanent walls to the center of partitions that
separate the suite from adjoining usable areas and to the inside of the outside
of the dominant portion of the permanent outer building walls; provided,
however, no deductions shall be made for columns or projections necessary to the
Building. The Usable Area of a floor shall be equal to the sum of all usable
areas on that floor.
2. TERM
The term of this Lease shall be for a period of ten (10) years, commencing
on September 1, 1998, (the "Commencement Date"), fully to be completed and ended
on August 31, 2008. Provided however, Tenant may begin construction on the
Leased Premises at anytime. Tenant acknowledges that Landlord has delivered
possession and Tenant has accepted possession of the Leased Premises
concurrently with the execution of this Lease.
3. RENT
(a) Base Rent. Tenant shall pay to Landlord as Base Rent for the Leased
Premises during each year of the term of this Lease the following sums at the
office of the Landlord or at such other location as designated by the Landlord,
without any prior demand therefor, and without any deduction or set off
whatsoever, except as otherwise provided in this Lease, the following monthly
payments (subject to final measurement) upon the first day of each and every
month throughout the term of this Lease; provided, however, that if the lease
term shall commence on a day other than the first day of a calendar month, the
rental shall be prorated to the first day of the following calendar month. Any
adjustments to base rent shall be at a rate of $ 17.05 per rentable square foot
in Lease Year 1, and shall increase by a factor of 1.05 each year thereafter.
All utilities described in Paragraph 6 are included in base rent, with the
exception of electricity, used for any purpose, as further described in
Paragraph 6.
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Estimated Monthly Payments - (subject to final measurement)
<TABLE>
<CAPTION>
<S> <C> <C>
- - -----------------------------------------
Month 1: $32,110.83
- - -----------------------------------------
Months 2,3,4: $16,055.42
- - -----------------------------------------
Months 5 -- 12: $32,110.83
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Months 13 -- 24: $33,716.38
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Months 25 -- 36: $35,402.19
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Months 37 -- 48: $37,172.30
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Months 49 -- 60: $39,030.92
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Months 61 -- 72: $40,982.46
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Months 73 -- 84: $43,031.59
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Months 85 -- 96: $45,183.17
- - -----------------------------------------
Months 97 -- 108: $47,442.33
- - -----------------------------------------
Months 109 -- 120: $49,814.44
- - -----------------------------------------
</TABLE>
(b) Past Due Fixed Rent and Additional Rent. If Tenant shall fail to pay
any Rent before the sixth day after such Rent is due and payable, Tenant agrees
to pay as Additional Rent each day from and after such sixth day that the Rent
remains unpaid a charge (the "Late Charge") which shall be the greater of (a)
$25.00 per day or (b) 5% of the amount of such unpaid Rent divided by 30. The
Late Charge shall accrue daily until the unpaid Rent (including the Late Charge)
is paid. Tenant agrees that such amounts are not a penalty, but are a reasonable
amount to reimburse Landlord for the loss of the use of the funds and the
additional administrative costs resulting from late payments.
4. USE AND OCCUPANCY
(a) Leased Premises. During the continuation of this Lease, the Leased
Premises may be solely used and occupied for professional offices, and for the
installation, operation, and maintenance of equipment, and facilities in
connection with Tenant's telecommunications business and for no other purpose
without the written consent of Landlord, which consent shall not be unreasonably
withheld. Tenant shall not use the Leased Premises for any purpose in violation
of any law, municipal ordinance, or regulation, nor shall Tenant perform any
acts or carry on any practices which may injure the Leased Premises, the
Building or be a nuisance, disturbance or menace to the other tenants of the
Building in which the Leased Premises are located. Upon breach of any of the
terms of this Lease, and after notice and the applicable cure period, Landlord
shall have the right to terminate this Lease forthwith and to re-enter and
repossess the Leased Premises. Landlord acknowledges that the Building is
currently zoned office service.
Landlord acknowledges that Tenant's business to be conducted in the
Premises requires the installation of certain communications equipment by
telecommunications customers of Tenant ("Customers") in order for such Customers
to interconnect with
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Tenant's terminal facilities. Notwithstanding anything contained elsewhere in
Section 9 of the Lease, Landlord agrees that no consent shall be required for
any license agreement or "co-location agreement" between Tenant or any such
Customer for the sole purpose of permitting such a telecommunications
connection, so long as (i) such Customer agrees in writing to comply with all
obligations of Tenant under this Lease relating to the Premises and (ii) each
such license agreement or co-location agreement is in writing and is consistent
with the provisions of this Lease. Any party to a license agreement or co-
location agreement shall not be deemed, under any circumstances, to be a
sublessee or assignee of the Premises and shall have absolutely no rights of
possession whatsoever in the Premises.
(b) Atrium. The "Atrium" of the Building shall be maintained as a Common
Area expense and included as an Operating Expense pursuant to Paragraph 15
hereof, provided, however, the Atrium shall not be considered a public or Common
Area. Landlord may in its sole discretion, permit Tenant the right to the use of
the Atrium for entertainment purposes, provided, however, such permission is
subject to the written consent of the Landlord, which consent shall not be
unreasonably withheld. If Tenant is permitted to use the Atrium, it shall be
responsible for the clean up of the Atrium after use. If, after such use, the
Atrium is not properly cleaned, then the Landlord shall clean the Atrium and
charge Tenant accordingly. Such cleaning costs shall not be considered as part
of the Operating Expenses for the Building but the sole cost of Tenant for the
use of the Atrium.
5. BUILDING ACCESS
Building is accessible to Tenant 24 hours per day. Access doors are secured
(locked) between the hours of 6:00 PM - 6:00 AM, Monday through Saturday, and 24
hours on Sunday at which time Tenant and/or Tenant's invitees must enter and
exit through the Ten Mile Road atrium doorway. However, Tenant may construct its
own separate entrance(s) for unlimited access with Landlord's prior written
consent which consent shall not be unreasonably withheld.
6. UTILITIES AND SERVICES
(a) Landlord shall furnish the Leased Premises with water, existing office
heat, existing office air conditioning, access to electrical supply, sewerage,
elevator service, janitorial service and snow removal, so long as Tenant is not
in default under the terms of this Lease after notice and the applicable cure
period. All electricity provided by Landlord shall be at Tenant's sole cost and
expense. Except for such items as may be initially furnished by Landlord, Tenant
agrees to purchase from Landlord, at prevailing rates in the Building,
fluorescent tubes, ballasts and any incandescent lamps approved by Landlord.
Landlord shall provide such utilities when and to the extent, in Landlord's
judgment, the same are necessary for the comfortable occupancy and use of the
Leased Premises. Existing office heat and existing office air conditioning shall
be provided on weekdays from 7:30 AM to 6:00 PM and on Saturdays from 7:30 AM to
1:00 PM, and elevators shall be
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subject to call at all times. If such utilities are furnished to or consumed by
Tenant during other hours, Landlord may impose a reasonable uniform charge
therefor. Landlord shall not be liable or responsible for any interruption in
utilities or other services caused by riots, strike, labor disputes, or
accidents or other cause beyond the immediate control of the Landlord, or for
stoppages or interruptions of any such services for the purpose of making
necessary repairs or improvements. Failure, interruption, or delay in furnishing
existing office heat, existing office air conditioning, water, electricity,
janitorial or other services unless caused by the gross negligence of the
Landlord shall not be construed as an actual or constructive eviction or partial
eviction against the Tenant by the Landlord nor shall such failure, interruption
or delay in any way operate as a release from the prompt and punctual
performance by the Tenant of the covenants contained herein. Tenant shall use
only such electrical lighting fixtures and lamps as may be approved by Landlord.
Electricity furnished by Landlord shall be used only for purposes of
illumination and the operation of office equipment which equipment is considered
common and normal low electrical consumption office equipment at the date of
execution hereof (expressly excluding therefrom computers, high electrical
consumption business machines and related equipment).
Tenant shall have the right at any time during the Term of this Lease, to
upgrade the Building and/or Tenant's HVAC/chilled water capacity, or install its
own HVAC system at its sole cost and expense, with prior written consent of the
Landlord, which consent shall not be unreasonably withheld.
(b) Landlord will install one or more electrical meters at Landlord's sole
cost, metering Tenant's use of electricity in the Leased Premises, including but
not limited to lighting, equipment, all HVAC, etc., in which event, Tenant will
pay to the Landlord the amount shown to be due based upon the meter reading. To
the extent that Landlord is unable to meter the electrical usage of the HVAC,
Landlord shall have the right to prorate the electrical usage for the HVAC
during normal business hours and include same as Additional Rent. All
electricity furnished to Tenant by Landlord shall be at Tenant's sole cost and
expense.
(c) Tenant shall be afforded access to the Building's electrical supply to
obtain a minimum of 500 kilowatts of power to the Premises. Landlord warrants
the building has sufficient capacity to provide 500 kilowatts of power during
the term of the Lease.
Tenant shall have the right at any time during the term of the Lease to
upgrade the Building's electrical service at Tenant's sole cost and expense,
with Landlord's prior written consent, which consent shall not be unreasonably
withheld.
Notwithstanding anything contained herein to the contrary, Tenant shall not
be liable for utility charges prior to the earlier to occur of: (1) the date
Tenant first occupies the Leased Premises for the operation of its business; or
(2) October 1, 1998.
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7. REPAIRS
(a) Landlord shall make all necessary repairs and replacements to the
building and to the common areas, now existing heating, now existing air
conditioning and electrical systems located therein except for the items of
electrical replacement which are the Tenant's responsibility pursuant to
Paragraph 9 hereof, and Landlord shall also make all repairs to the Leased
Premises which are structural in nature; provided, however, that Tenant shall
make all repairs and replacements arising from its act, neglect or default.
Except as provided above, Tenant shall keep the Leased Premises in good repair,
and Tenant shall upon the expiration of the term of this Lease, yield and
deliver up the Leased Premises in like condition as when taken, and remove such
fixtures, equipment and improvements noted on Tenant's plans which are approved
by Landlord and attached to an Amendment to this Lease ("Tenant's Improvements
to be Removed") reasonable use and wear thereof excepted. Notwithstanding
anything contained herein to the contrary, any HVAC system(s) installed by
Tenant shall be repaired or maintained at Tenant's sole and cost and expense.
(b) In the event that the Landlord shall deem it necessary, or be required
by any governmental authority to repair, alter, remove, reconstruct or improve
any part of the Leased Premises or of the Building (unless the same result from
Tenant's act, neglect, default or mode of operation in which event Tenant shall
make all such repairs, alterations and improvements), then the same shall be
made by Landlord with reasonable dispatch, and should the making of such
repairs, alterations or improvements cause any interference with Tenant's use of
the Leased Premises, such interference shall not relieve Tenant from the
performance of its obligations hereunder provided, however, Landlord shall use
reasonable efforts not to interfere with Tenant's use of the Premises.
8. ALTERATIONS
(a) Tenant shall not make any alterations, additions or improvements to the
Leased Premises (whether or not the same may be structural in nature) without
Landlord's prior written consent, which consent shall not be unreasonably
withheld, and all alterations, additions or improvements made by either party
hereto to the Leased Premises, except movable office furniture and equipment
installed at Tenant's expense, shall, at the option of the Landlord, be
considered the property of Landlord and remain upon and be surrendered with the
Leased Premises at the expiration of the term hereof provided, however, Tenant
shall be obligated to remove Tenant's Improvements to be Removed unless
otherwise agreed to by Landlord. If the Landlord so elects, the Tenant shall
remove all such alterations, additions and improvements at the expiration of the
term of this Lease so as to yield the Leased Premises in the condition required
by Paragraph 8 hereof, including, but not limited to, any and all equipment,
HVAC system(s), conduits, cables, and other alterations installed by or on
behalf of Tenant.
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(b) Subject to Landlord's review and approval of Tenant's plans, Tenant
shall be granted, at no additional cost, the right to install, maintain, and
replace from time to time a satellite dish/GPS receiver on the roof of the
Building. Such installation is subject to Tenant obtaining, at Tenant's sole
cost and expense, all necessary federal, state, and local permits and licenses,
and any additional rights of easements required in connection therewith.
(c) In the event Tenant desires to make future alternations in the Leased
Premises, Tenant shall provide written notice specifying such requested
alterations, together with plans and specifications. Tenant shall not make any
such alterations without Landlord's written consent which consent shall not be
unreasonably withheld.
9. ASSIGNMENT AND SUBLETTING
(a) Subject to subsection (b) of this Paragraph 9, Tenant shall not assign
or transfer this Lease or hypothecate or mortgage the same or sublet the Leased
Premises or any part thereof without the prior written consent of Landlord,
which consent shall not be unreasonably withheld. Any assignment, transfer
(including transfers by operation of law or otherwise), hypothecation, mortgage
or subletting without such written consent shall give Landlord the right to
terminate this Lease and to re-enter and repossess the Leased Premises. Anything
to the contrary notwithstanding, in the event Tenant assigns or sublets all or a
part of the Leased Premises (subject to Landlord's consent), Tenant shall remain
liable under the terms of this Lease.
(b) Tenant shall have the right, without Landlord's consent, to sublet or
assign the Premises, or any part thereof to any successor, resulting from a
merger, or consolidation or to any entity under common control of Tenant,
provided, however, that the foregoing shall not result in any material or
adverse change in the financial condition of Tenant at the time that the
premises are sublet or assigned. The following events shall not be considered an
assignment or sublease for the purposes of this Lease: (i) a merger or
consolidation between Tenant and another company; (ii) a sale of substantially
all of the business or assets of Tenant; (iii) an assignment or sublease to an
affiliate or subsidiary of Tenant; (iv) any sale of Tenant's common or preferred
stock; or (v) and co-location.
(b) In the event Tenant subleases or assigns this Lease in accordance with
the provisions of this Paragraph 9, Landlord and Tenant shall each receive one-
half of any increase over the amounts to be paid by Tenant under this Lease paid
by the assignee or sublessee, whether such amounts are denominated as rent or
otherwise.
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10. INSURANCE AND INDEMNIFICATION
Tenant shall indemnify and hold Landlord harmless from any liability for
damages to any person or property in, on or about the Leased Premises from any
cause whatsoever, except for the gross negligence or willful misconduct of
Landlord and Tenant shall procure and keep in effect during the term hereof
public liability and property damage insurance protecting Landlord and Tenant,
having as limits of liability One Million ($1,000,000.00) Dollars for damages
resulting to one person, Two Million ($2,000,000.00) Dollars for damages
resulting from one casualty, and Five Hundred Thousand ($500,000.00) Dollars for
property damage resulting from any one occurrence. Tenant shall deliver policies
of such insurance or certificates thereof to Landlord, and in the event Tenant
shall fail to procure such insurance, Landlord may at its option procure the
same for the account of Tenant, and the cost thereof shall be paid to Landlord
as Additional Rent upon receipt by Tenant of bills therefor. Tenant's
certificate of insurance shall provide that the insurer shall provide thirty
(30) days notice of cancellation to Landlord.
11. FIRE
(a) In the event the Leased Premises are damaged or destroyed in whole or
in part by fire or other casualty during the term hereof, Landlord shall upon
receipt of insurance proceeds, at its own cost and expense, repair and restore
the same to tenantable condition with reasonable dispatch, and the rent herein
provided for shall abate entirely in case the entire leased Premises are
untenantable and pro rata for the portion rendered untenantable, in the event of
partial untenantability, until such time as the Leased Premises are restored to
tenantable condition. If the Leased Premises cannot be restored to tenantable
condition within a period of two hundred forty (240) days, Landlord or Tenant,
shall have the right to terminate this Lease upon written notice to the Tenant
and any rent paid for any period in advance of the date of such damage and
destruction shall be refunded to Tenant. If the Leased Premises are damaged due
to fire or other casualty, Tenant shall at its own cost and expense remove such
of its furniture and other belongings from the Leased Premises as Landlord shall
require in order to repair and restore the Leased Premises.
(b) In the event the Building in which the Demised premises are located is
destroyed to the extent of more than one-quarter of the then value thereof,
Landlord shall have the right to terminate this Lease upon written notice to
Tenant, in which event any rent paid in advance of the date of such destruction
shall be refunded to Tenant.
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12. EMINENT DOMAIN
If the whole or any substantial part of the Leased Premises or the Building
in which they are located shall be taken by any public authority under the power
of eminent domain, then the term of this Lease shall cease on the part as taken
on the date possession of that part shall be required for public use, and any
rent paid in advance of such date shall be refunded to Tenant, and Landlord and
Tenant shall have the right to terminate this Lease upon written notice to the
other, which notice shall be delivered within thirty (30) days following the
date notice is received of such taking. In the event that neither party hereto
shall terminate this Lease, Landlord shall make all necessary repairs to the
Leased Premises and the Building to render and restore the same to a complete
architectural unit and Tenant shall continue in possession of the portion of the
Leased Premises not taken under the power of eminent domain, under the same
terms and conditions as are herein provided, except that the rent reserved
herein shall be reduced in direct proportion to the amount of the Leased
Premises so taken. All damages awarded for such taking shall belong to and be
the property of Landlord, whether such damages be awarded as compensation for
diminution in value of the leasehold or to the fee of the Leased Premises;
provided, however, Landlord shall not be entitled to any portion of the award
made to Tenant for removal and reinstallation of fixtures or moving expenses.
13. RULES AND REGULATIONS
The rules and regulations set forth on Exhibit C attached hereto, together
with such other reasonable rules and regulations as Landlord shall make from
time to time which are of uniform applicability to all tenants of the Building
shall be binding upon Tenant and are hereby made a part of this Lease. In the
event that there is a conflict between the Lease and the Rules and Regulations,
the Lease terms shall prevail.
14. INCREASED REAL ESTATE TAXES AND INCREASED OPERATING EXPENSES
Tenant's share of Increased Real Estate Taxes and Operating Expenses are
included in the Base Rent, as shown in Paragraph 3(a).
15. CONDITION OF PREMISES
Tenant shall accept the Leased Premises in its present condition, subject
however to the work specified in Exhibit H to this Lease, which Landlord or
Tenant's construction representative shall commence on or before October 1,
1998, and the improvements which the Landlord hereby undertakes to complete as
specified in Exhibit H to this Lease. Tenant acknowledges that no
representations as to the condition of the Leased Premises have been made by
Landlord or its agents, and no obligation as to repairing, improving or adding
to the same has been assumed by Landlord, except as otherwise provided herein.
Any changes, alterations, repairs or decorations to make the Leased Premises
suitable for
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the occupancy of Tenant shall be made at Tenant's cost and expense, subject to
Landlord's consent as set forth in Paragraph 8 hereof. Tenant further expressly
acknowledges and agrees that Landlord shall have no obligation to supply or
construct any improvements to the Leased Premises other than as are set forth in
Exhibit H and that Landlord's monetary obligations with respect to any such
improvements are expressly limited by the terms and provisions of this Lease and
Exhibit H.
16. QUIET ENJOYMENT
Landlord warrants that Tenant, upon paying the rents herein provided and in
performing each and every covenant hereof, shall peacefully and quietly hold,
occupy and enjoy the Leased Premises throughout the term hereof, without
molestation or hindrance by any person whomsoever.
17. SUBORDINATION
Landlord reserves the right to subject and subordinate this Lease at all
times to the lien of any mortgage or mortgages now or hereafter placed upon
Landlord's interest in the Leased Premises and on the land and building of which
the Leased Premises are a part or upon any building hereafter placed upon the
land of which the Leased Premises are a part; provided, however, no default by
Landlord under any such mortgage shall affect Tenant's rights hereunder so long
as Tenant is not in default under this Lease. Each party promptly after
receiving a written request from the other party shall furnish the requesting
party with a signed estoppel letter which shall (i) identify this Lease and any
Amendment to it, (ii) state that the Lease is in full force and effect and has
not been modified, supplemented or terminated except as shown in identified
Amendments, and (iii) state that there are no known uncured defaults in the
requesting party's performance of its obligations under this Lease or described
any such defaults which do not exist.
So long as Tenant is not in default hereunder, Landlord shall provide
Tenant with non-disturbance agreements from all current and future ground
lessors, mortgage holders, or lien holders (which have not been bonded over) of
the Building. Such non-disturbance agreements shall be provided within a
reasonable time after the creation of an interest superior to that of Tenant.
Such non-disturbance agreement shall include any permitted assignees of
sublessees of Tenant.
18. NON-LIABILITY
Landlord shall not be responsible or liable to Tenant for any loss or
damage that may be occasioned by or through the acts or omissions of persons
occupying adjoining premises or any part of the premises adjacent to or
connected with the Leased Premises or any part of the Building or for any loss
or damage resulting to Tenant or his property from burst, stopped or leaking
water, gas, sewer or steam pipes, or for any damage or loss
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of property within the Leased Premises from any cause whatsoever. In the event
of any sale or transfer (including any transfer by operation of law) of the
Leased Premises, Landlord (and any subsequent owner of the Leased Premises
making such a transfer) shall be relieved from any and all obligations and
liabilities under this lease except such obligations and liabilities as shall
have arisen during Landlord's (or such subsequent owner's) respective period of
ownership provided that the transferee assumes in writing all of the obligations
of the Landlord under this Lease.
19. NON-WAIVER
One or more waivers of any provision hereof by Landlord shall not be
construed as a waiver of a subsequent breach of the same provision, and the
consent or approval by Landlord to or of any act by Tenant requiring Landlord's
consent or approval shall not be deemed to waive or render unnecessary
Landlord's consent or approval to or of any subsequent similar act by Tenant.
20. SUBROGATION
Landlord and Tenant shall each obtain from their respective insurers under
all policies of fire insurance maintained by either of them at any time during
the Term insuring or covering the Building or any portion thereof or operations
therein, a waiver of all rights of subrogation which the insurer of one party
might have against the other party, the Landlord and Tenant shall each indemnify
the other against any loss or expense, including reasonable attorneys' fees,
resulting from the failure to obtain such waiver and, so long as such waiver is
outstanding, each party waives, to the extent of the proceeds received under
such policy, any right of recovery against the other party for any loss covered
by the policy containing such waiver; provided, however, that if at any time
their respective insurers shall refuse to permit waivers of subrogation,
Landlord or Tenant, in each instant, may revoke said waiver of subrogation
effective thirty (30) days from the date of such notice unless within such
thirty (30) day period, the other is able to secure and furnish (without
additional expense) equivalent insurance with such waivers with other companies
satisfactory to the other party.
21. BANKRUPTCY
In the event the estate created hereby shall be taken in execution or by
other process of law, or if Tenant shall be adjudicated insolvent or bankrupt
pursuant to the provisions of any state or federal insolvency or bankruptcy law,
or if a receiver or trustee of the property of Tenant shall be appointed by
reason of Tenant's insolvency or inability to pay its debts, or if any
assignment shall be made of Tenant's property for the benefit of creditors, than
and in any such events, Landlord may terminate this Lease by written notice to
Tenant; provided, however, if the order of court creating any of such
disabilities shall not be final by reason of pendency of such proceedings, or
appeal from such order, then
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Landlord shall not have the right to terminate this Lease so long as Tenant
performs its obligations hereunder.
22. LANDLORD'S REMEDIES
(a) In the event the Tenant shall fail to pay the Rent reserved herein when
due, Landlord shall give Tenant written notice of such default and if Tenant
shall fail to cure such default within five (5) days after receipt of such
notice, Landlord shall, in addition to its other remedies provided by Law, have
the remedies set forth in subparagraph (c) below.
(b) If Tenant shall be in default in performing any of the terms of this
Lease other than the payment of rent, Landlord shall give Tenant written notice
of such default, and if Tenant shall fail to cure such default within thirty
(30) days after receipt of such notice, or if the default is of such a character
as to require more than thirty (30) days to cure, then if Tenant shall fail
within said thirty (30) days period to commence and thereafter proceed
diligently to cure such default, then and in either of such events, Landlord may
(at its option and in addition to other legal remedies) cure such default for
the account of Tenant and any sum so expended by Landlord shall be Additional
Rent for all purposes hereunder, including subparagraph (a) above, and shall be
paid by Tenant with the next monthly installment of rent.
(c) If any Rent shall be due and unpaid or Tenant shall be in default upon
any of the other terms of this Lease, and such default has not been cured after
notice and within the time provided in subparagraph (a) and (b) above, or, if
the Leased Premises are abandoned, then Landlord, in addition to its other
remedies, shall have the immediate right to re-entry. Should Landlord elect to
re-enter or take possession pursuant to legal proceedings or any notice provided
for by law, Landlord may either terminate this Lease or from time to time,
without terminating this Lease, relet the Leased Premises or any part thereof on
such terms and conditions as Landlord shall in its sole discretion deem
advisable. The avails of such reletting shall be applied: first, to the
payment of any indebtedness from Tenant to Landlord other than Rent due
hereunder; second, to the payment of any reasonable costs of such reletting,
including the cost of any reasonable alterations and repairs to the Leased
Premises; third, to the payment of Rent due and unpaid hereunder; and the
residue, if any, shall be held by Landlord and applied in payment of future Rent
as the same may become due and payable hereunder. Should the avails of such
reletting during any month be less than the monthly rent reserved hereunder,
then Tenant shall during each such month pay such deficiency to Landlord.
(d) All rights and remedies of Landlord hereunder shall be cumulative and
none shall be exclusive of any other rights and remedies allowed by law.
23. HOLDING OVER
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In the event of Tenant holding over, with the consent of the Landlord,
after the termination of this Lease, thereafter the tenancy shall be from month
to month subject to all conditions, provisions and obligations of this Lease
insofar as the same can be applicable to a month-to-month tenancy except that
the Base Rent shall be one hundred fifty (150%) percent of the monthly
installment amount set forth in Paragraphs 3(a) and 3(b) of this Lease, in the
absence of a written agreement to the contrary.
24. ENTIRE AGREEMENT
This Lease and the attachments hereto shall constitute the entire agreement
of the parties hereto; all prior agreements between the parties, whether written
or oral, are merged herein and shall be of no force and effect. This Lease
cannot be changed, modified or discharged orally but only by an agreement in
writing, signed by the party against whom enforcement of the charge,
modification or discharge is sought.
25. NOTICES
Whenever under this Lease a provision is made for notice of any kind it
shall be deemed sufficient notice and service thereof if such notice to Tenant
is in writing addressed to Tenant at his last known post office address, or at
the Leased Premises, and deposited in the mail, certified or registered mail,
with postage prepaid, and if such notice to Landlord is in writing addressed to
the last known post office address of Landlord and deposited in the mail,
certified or registered mail, with postage prepaid. Notice need be sent to only
one Tenant or Landlord where Tenant or Landlord is more than one person.
26. SUCCESSORS
This Lease shall inure to the benefit of and be binding upon the parties
hereto, their respective heirs, administrators, executors, representatives,
successors and assigns.
27. PARKING
Tenant and the Tenant's employees shall park their automobiles only in
those portions of the parking areas designated for that purpose by the Landlord.
Upon Agreement between Landlord and Tenant, Tenant shall have assigned and
marked parking places for Tenant's exclusive use together with reasonably ample
parking on the Land for Tenant's requirements. See Exhibit F attached to this
Lease.
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28. SECURITY DEPOSIT
(a) As security for the faithful performance by Tenant of all of the terms
and conditions upon the Tenant's part to be performed, Tenant has this day
deposited with Landlord the sum of seventy-five thousand and 00/100 dollars
($75,000.00), which shall be returned to tenant, without interest, upon the
expiration date of this Lease, provided that Tenant has fully and faithfully
performed all of the terms, covenants and conditions on its part to be
performed. Landlord shall have the right (but not the obligation) to apply any
part of said deposit to cure any default of Tenant's, including a setoff at the
time of the assignment of the Security Deposit, and if the Landlord does so
Tenant shall, upon demand, deposit with Landlord the amount so applied so that
Landlord shall have the full deposit on hand at all times during the term of
this Lease. Landlord shall not be obligated to keep such security deposit as a
separate fund but may mix such security deposit with Landlord's own funds.
(b) In the event of a sale of the Building, or of the lease of the land on
which it stands, the Landlord shall transfer this Security Deposit to the vendee
or lessee and the Landlord shall be considered released by Tenant from all
liability for the return of such Security Deposit and Tenant shall look solely
to the new Landlord for the return of the said Security Deposit. It is agreed
that this shall apply to every transfer or assignment made of the Security
Deposit to a new Landlord. The Security Deposit under this Lease shall not be
mortgaged, assigned or encumbered by Tenant without the written consent of
Landlord and any attempt to do so shall be void. In the event of any rightful
and permitted assignment of this Lease, the Security Deposit shall be deemed to
be held by Landlord as a deposit made by the assignee and Landlord shall have no
further liability with respect to the return of said Security Deposit to the
assignor. Any mortgagee of Landlord shall be relieved and released from any
obligation to return such Security Deposit in the event such mortgagee comes
into possession of the Leased Premises and/or the Building by reason of
foreclosure of its security interest or any proceeding in lieu thereof.
29. NON-LIABILITY OF LANDLORD'S AGENT
Tenant acknowledges that North LLC, is executing this Lease as agent for
and on behalf of the Landlord and Tenant further acknowledges and agrees that
should any litigation arise as a result of this Lease or Tenant's occupancy of
the Leased Premises, North LLC shall not be named as a party in said litigation
or joined therein for any purpose whatsoever and Tenant hereby waives any rights
it may have against North LLC, and further agrees to indemnify and hold harmless
North LLC, its officers, directors, shareholders, agents and employees, with
respect to any liabilities arising out of this Lease; provided that Landlord
assumes North LLC's, obligation and liability with respect to North LLC's
negligence, acts or omissions.
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30. FIRST RIGHT OF REFUSAL
(a) Provided that Tenant is not in default after notice and applicable cure
period(s) hereunder on the date of any Notice of Additional Space (hereinafter
defined) or any Additional Space Commencement Date (as hereinafter defined),
Landlord agrees that if at any time and from time to time prior to the last year
of the term (or if extended pursuant to Paragraph 31 hereof, the last year of
any renewal term) if any portion of the east wing of the first floor of the
Building not included in the Leased Premises shall become vacant and available
for leasing ("First Offer Space"), Landlord, before offering to a prospective
tenant a commitment to lease or before executing a lease in respect of First
Offer Space, to anyone other than Tenant, but after receiving an offer to lease
("Offer'), which Offer is acceptable to Landlord, shall offer to Tenant the
right to include such First Offer Space within the Leased Premises upon all of
the terms and conditions of this Lease, except that in respect of each First
Offer Space, the following changes shall apply:
(i) The Base Rent payable with respect to the respective First Offer
Space shall be the rental rate for said space contained in the
Offer; and
(ii) "Rentable Square Feet of Leased Premises" shall be the net usable
square feet of the particular First Offer Space as determined in
accordance with standard of floor measurement then being used by
Landlord multiplied by 1.13.
In the event that Tenant shall accept any First Offer Space in
accordance with the terms of this Paragraph 30, Landlord and Tenant shall, at
the request of either party, execute and deliver an agreement supplemental to
this Lease setting forth the terms and conditions of this Lease as the same
shall affect the said First Offer Space.
(b) Landlord shall make any foregoing offer in writing promptly after
Landlord receives an Offer (a "Notice of Additional Space"), which shall specify
the estimated Additional Space Commencement Date for the location of, the square
footage contained in the proposed Base Rent in respect of, the applicable first
floor space, and Tenant shall have the right to exercise such option by written
notice within five (5) business days after Landlord makes its offer to Tenant,
as to which time is of the essence. Tenant shall accept each First Offer Space
in its "as is" condition on the Additional Space Commencement Date and agrees
that Landlord will not be required to make any improvements therein unless the
offer provides for it. The inclusion date for the inclusion of a First Offer
Space in the Leased Premises (the "Additional Space Commencement Date") shall be
the later to occur of (a) the date that Tenant exercises its option as
aforesaid, or (b) the date the First Offer Space shall be delivered vacant and
broom-cleaned for Tenant's occupancy. If Tenant fails to timely or does not
accept the foregoing offer made by Landlord pursuant to the foregoing provisions
with respect to a particular First Offer Space, Landlord shall be
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under no further obligation to Tenant with respect to such First Offer Space by
reason of this Paragraph 30, and Landlord shall be entitled to accept the Offer.
31. EXTENDED TERM OF LEASE
Tenant shall have the option to extend the term of this Lease for the
entire Leased Premises for two (2) five (5) year terms (each, an "Extended Term"
and collectively, the "Extended Terms"). The option shall be exercised by
written notice to Landlord given at least twelve (12) months prior to the
expiration of the then current Term. Time shall be of the essence for the
exercise of such option. Tenant shall have no further right to extend or renew
this Lease. Each Extended Term shall be upon the same covenants, agreements,
provisions and conditions that are contained herein for the then current Term,
except as expressly provided herein to the contrary and except for provisions
that are inapplicable to each Extended Term. For purposes of the first Extended
Term, the Annual Base Rent shall be the greater of (i) ninety (90%) percent of
the "prevailing market rental rate" in existence approximately three to four
months before the termination of the initial ten (10) year Term or (ii) Twenty-
five and 00/100 dollars ($25.00) per rentable square foot. For purposes of any
subsequent Extended Term, the Annual Base Rent shall be the greater of (i)
ninety (90%)percent of the "prevailing market rate" in existence approximately
three to four months before the termination of the immediately prior Extended
Term or (ii) one hundred five (105%) percent of the Annual Base Rent for the
last Lease Year of the immediately prior Extended Term. During each five year
Extended Term, commencing with the second Lease Year of each Extended Term, the
Annual Base Rent shall be increased by five (5%) percent of the prior Lease
Year's Annual Base Rent. The term "Prevailing Market Rental Rate" shall mean
the rental rate as would be accepted by a willing prospective tenant, taking
into account the tenant's creditworthiness and the size of space to be leased,
and accepted by a willing landlord for office space in the building and in other
office buildings of like quality and size within a ten (10) mile radius of the
Building. In determining the Prevailing Market Rental Rate, the appraiser or
appraisers shall take into account that this Lease is a gross lease. Such
appraiser or appraisers shall also take into account any additional services
provided to Tenant, the cost of such services which are not included currently
under the Lease or the increase in real estate taxes.
The Prevailing Market Rental Rate shall be established by the following
procedure:
(a) Not earlier than one hundred twenty (120) days nor later than ninety
(90) days prior to the first day of any Extended Term, Landlord shall give to
Tenant written notice of the Prevailing Market Rental Rate which Landlord
proposes to establish, together with such supporting information, if any, as
Landlord shall elect to provide. Within thirty (30) days after receipt of
Landlord's notice, Tenant shall give written notice to Landlord, either
accepting the Prevailing Market Rental Rate proposed by Landlord or proposing
such different Prevailing Market Rental Rate as Tenant shall be willing to
accept, together with supporting information. Within fifteen (15) days after
receipt of Tenant's notice proposing a different rate of Prevailing Market
Rental Rate as aforesaid, Landlord shall
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give to Tenant a further written notice either accepting Tenant's counter-
proposal or naming an appraiser; and in the later case, within fifteen (15) days
after receipt of Landlord's further notice, Tenant shall give written notice to
Landlord either accepting the appraiser named by Landlord to act as the sole and
exclusive appraiser or naming a second appraiser; in this latter case, the two
appraisers thus named shall promptly proceed to select a third appraiser
acceptable to both of them.
(b) Each appraiser shall be a duly-licensed Michigan real estate broker or
an appraiser having the "M.A.I." designation granted by the American Institute
of Real Estate Appraisers (or the then current equivalent of such designation)
and in any case shall have been actively engaged in the leasing or determination
of rental value of office and commercial space in the Detroit area for not less
than five (5) years prior to the time of appointment of such appraiser, but
shall not be employed by or have any material interest in either Landlord or
Tenant or in any affiliates of either, or in the outcome of the appraisal
proceeding.
(c) As promptly as possible after his or their appointment, the appraiser
or appraisers, as the case may be, shall proceed to establish such "prevailing
market rental rate in his or their determination shall be effective as of the
first day of the applicable Extended Term even though not established until
after such date, and shall be binding and conclusive upon both Landlord and
Tenant for all the purposes of this Lease. If there shall be more than two
appraisers, the decision shall be made by a majority of them.
(d) If the appraisers' determination of "prevailing market rental rate"
shall not be issued until after the first day of any applicable Extended Term,
the Annual Base Rent shall continue to be paid at the rate last in effect until
such determination shall be issued, whereupon any amounts due from Tenant to
give effect to such determination as of the first day of the applicable Extended
Term shall be paid forthwith upon demand.
(e) Landlord and Tenant shall each cooperate with the appraiser or
appraisers in all reasonable respects and shall each bear one-half (1/2) of all
costs of such appraisal proceeding except for the fees of the appraisers
themselves: If there is only one appraiser, his fee shall be borne one-half
(1/2) by each of the Landlord and Tenant, and if there is more than one, each
party shall bear the entire fee of the appraiser appointed by it and one-half
(1/2) of the fee of any third appraiser.
(f) Time shall be of the essence for the exercise of such option. Tenant
shall have no further right to extend or renew this Lease.
32. FIBER OPTICS
(a) Subject to Landlord's reasonable approval of final locations and plans
and specifications, and Tenant obtaining all necessary permits, licenses, and
inspections, and further subject to Paragraph 39 hereof, Landlord shall give
Tenant reasonable access to
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(i) vertical and horizontal shafts, (ii) two (2) separate underground locations
from the property line to the exterior of the Building in size sufficient to
allow for the installation of ten four inch conduits; (iii) the main telephone
vault and electrical services room in the base; and (iv) two separate chase
space locations from the exterior of the Building to the Premises in size
sufficient to allow for installation of four four inch conduits to enable Tenant
to install, operate, maintain, repair and replace fiber optic cable and
associated equipment (the "Facilities") in the Building to and from the Leased
Premises.
Landlord and Tenant agree that Tenant's communication, HVAC, electrical and
other various equipment will require Tenant to use Building shafts, risers,
chases, utility entrances, equipment rooms, and distribution areas or conduits
between the Premises and other parts of the Building (including the roof).
Tenant shall be afforded the right to use where available, and/or construct
conduits to connect Tenant's equipment.
Tenant shall have the right to utilize and/or install four (4)-four inch
(4") conduits from the telephone service point of entry to designated areas
within the Tenant's Premises. Landlord will cooperate in locating points of
entry to provide redundancy of access for telecommunications services and
providers to the Building.
(b) Following notice to and approval of Landlord, Tenant shall have right
of access to the Building and the right to construct, where necessary and at its
sole cost and expense, conduit facilities associated with providing public
utility telecommunications services to the Leased Premises; provided however, in
connection with such right of access for construction, Tenant, its contractors
and agents shall not unreasonably interfere with the use and enjoyment of the
Building by other tenants of the Building and any such construction shall not
adversely impact the aesthetics of the Building. Any damage to the Building,
the parking lot or any other common areas of the Building occasioned by such
right of access and construction shall be forthwith remedied by Tenant to
Landlord's satisfaction.
(c) Nothing contained herein shall be construed as granting to Tenant any
ownership rights in the Building or to create a partnership or joint venture
between Landlord and Tenant.
(d) Prior to the commencement of any fiber optic work, Tenant shall, at its
cost and expense, prepare and deliver to Landlord working drawings, plans and
specifications (the "Plans"), detailing the location and size of the Facilities
specifically describing the proposed construction and work. No work shall
commence until Landlord has approved the Plans, which approval will not be
unreasonably withheld or unduly delayed. Tenant shall:
(i) perform such construction in a safe manner consistent with
generally accepted construction standards in a good and
workmanlike manner, by insured contractors approved by Landlord
and on a lien free basis;
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(ii) perform such construction and work in such a way as to
reasonably minimize interference with the operation of the
Building; and
(iii) obtain, at its sole expense prior to the commencement of any
construction and work, necessary federal, state and municipal
permits, licenses and approvals and cause any required federal,
state and municipal inspections after completion of such
construction and work to be made and remedy any deficiencies
disclosed by any such inspections.
(e) Tenant hereby covenants and agrees:
(i) to keep the Equipment Space and the Facilities in good order,
repair and condition throughout the term (as hereinafter
defined) and promptly and adequately repair all damage to the
Building caused by Tenant, other than ordinary wear and tear;
(ii) to comply with federal, state and municipal laws, orders, rules
and regulations applicable to the Facilities; and
(iii) except as contemplated by subsection (d)(ii), not to disrupt,
adversely affect or interfere with other providers of services
in the Building or with any occupant's use and enjoyment of his
leased premises of the common areas of the Building.
(f) The Facilities shall be there at the sole risk of Tenant and Landlord
shall not be liable for damage thereto or theft, misappropriation or loss
thereof.
33. BROKERAGE
Tenant and Landlord acknowledge that Tenant has dealt with Grubb & Ellis.
in connection with this Lease. Tenant indemnifies and holds the Landlord, its
successors and assigns and its agents and employees, harmless from all claims of
any other broker or brokers in connection with this Lease claiming by, through
or under Tenant. Landlord warrants and represents to Tenant that it has not
dealt with a broker in connection with this Lease and that no broker negotiated
this Lease on behalf of Landlord or is entitled to any commission in connection
therewith. Landlord indemnifies and holds the Tenant, its successors and
assigns and its agents and employees harmless from all claims of any broker or
brokers in connection with this Lease claiming by, through or under Landlord.
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34. TENANT NETWORK
Subject to Landlord's approval of the location of cables or conduits, if
necessary, Tenant may offer its telecommunications services to other tenants in
the Building on a non-exclusive basis. Landlord acknowledges that there are no
agreements or restrictions with other entities that would prohibit Tenant's
provision of such service.
35. TENANT'S ALTERATIONS
Landlord acknowledges that at least 1,000 square feet of the Leased
Premises have a minimum load rating of 300 pounds per square foot, and that the
remainder of the Leased Premises have a minimum load rating of 100 pounds per
square foot. Subject to Landlord's approval of final locations and plans and
specifications, and Tenant's obtaining of all necessary permits, licenses, and
inspections and further subject to Paragraph 39 hereof, Tenant may, at its sole
cost and expense, or as part of the Tenant Improvements, perform work on the
Leased Premises or, as noted, on the Building:
(e) Tenant shall have the right to construct walls or such other coverings
over some or all of the windows of the Premises as may be necessary for the
operation of Tenant's telecommunications business with Landlord's prior written
consent which consent shall not be unreasonably withheld.
(f) Install (or modify current system) a pre-action sprinkler system,
local/remote alarm systems, and total flooding gaseous fire detection, alarm,
control, and extinguishing systems in the Leased Premises;
(g) Install passive radio frequency shielding in the Leased Premises;
(h) Install a 750 MCM copper insulated ground conductor in a conduit from
the master ground at the lowest point of the Building to the Leased Premises;
(i) Install, maintain, modify, and operate a DC battery plant and power
distribution for operation of the telecommunications systems on the Lease
Premises;
(j) Tenant shall be entitled to the use of the area described on Exhibit I
attached hereto for the purpose of locating therein a minimum 500 Kilowatt
emergency power generator and diesel fuel tank (with necessary conduit, wiring
or cabling) and other facilities consistent with Tenant's use of its Premises
for continuous uninterrupted telecommunications services, all at Tenant's sole
cost and expense. Tenant shall have exclusive distribution rights to said
generator. If in Tenant's reasonable determination the area described above
does not meet Tenant's requirements, Landlord will cooperate with Tenant in
determining another location reasonable acceptable to Landlord, subject to the
approval of the City of Southfield.
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Tenant shall have the right to conduct periodic tests of the emergency
power generator after normal business hours at any time, provided that Landlord
is given reasonable notice, and that such tests will not interfere with the
operations of any other Tenants, or the Building. Landlord shall work with
Tenant to establish a time mutually acceptable during non business hours to
accommodate Tenant's testing.
(k) Install four four-inch conduits from the standby generator to the
Leased Premises.
(l) Install cables, conduits, pipes, and other devices in the shafts,
ducts, pipes, or conduits of the Building between the Leased Premises and the
remainder of the Building.
(m) Tenant shall have the right at any time during the Term of this Lease,
to upgrade the existing and/or to install new HVAC system(s) at its sole cost
and expense, either on the building roof or within Tenant's demised premises,
subject to City of Southfield's approval and Landlord's written consent, which
consent shall not be unreasonably withheld.
(n) Tenant shall have full and complete responsibility for the proper
storage, use, and disposal of Gell Cell Batteries and Diesel Fuel as required
for Tenant's normal course of business.
If the Landlord so elects, the Tenant shall remove such alterations, additions,
and improvements at the expiration of the term of this Lease, as required by the
"Tenant's Improvements to be Removed" which has been attached to the Lease, so
as to yield the Leased Premises in the condition required by Paragraph 8 hereof,
including, but not limited to any and all equipment, HVAC system(s), conduits,
cables, and other alterations installed by or on behalf of Tenant.
36 SIGNAGE
Tenant shall not permit or suffer any signs, logos, symbols, advertisements
or notices to be displayed, inscribed upon or affixed on any part of the outside
or inside of the Leased Premises or in any other part of the Building or on the
street adjacent to the Building except as expressly permitted hereunder.
Tenant's name shall be affixed to the directory board to be provided by Landlord
and on the entrance doors of the Leased Premises, but only in such size, color,
manner and style that are lawful and approved by Landlord. Any such sign shall
be subject to Landlord's prior written approval, shall be manufactured and
installed at Tenant's expense and must comply with all applicable laws, codes
and ordinances applicable thereto. In the event Tenant places its name on the
east side of the Building, Tenant shall pay to Landlord an additional $2,500 per
month as Base Rent.
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37 ENVIRONMENTAL CONDITION
To the best of Landlord's knowledge, and based solely upon the Phase I
environmental study provided to Tenant, there are no hazardous materials
(including, without limitation, any asbestos containing materials or PCB) in the
Leased Premises or in the Building.
38 REFLECTIVE HARMONIC INTERFERENCE
Notwithstanding anything contained herein to the contrary, Tenant's
alterations and/or improvements shall not cause any Reflective Harmonic
interference. In the event that any alterations or improvements do cause such
interference, Tenant shall remedy such interference immediately, and Tenant
shall be solely liable for any and all damage caused by or arising out of such
interference.
39 CONSTRUCTION RESTRICTIONS
(a) Tenant shall not suffer or permit any construction liens to be filed
against the Leased Premises or any part thereof by reason of work, labor,
services or materials supplied or claimed to have been supplied to Tenant or
anyone holding the Leased Premises or any part thereof through or under Tenant.
If any such construction lien shall at any time be filed against the Leased
Premises, Tenant shall cause the same to be discharged of record within twenty
(20) days after the date of filing the same. If Tenant shall fail to discharge
such construction lien within such period, then, in addition to any other right
or remedy of Landlord, Landlord may, but shall not be obligated to, discharge
the same either by paying the amount claimed to be due or by procuring the
discharge of such lien by deposit in court or by giving security or in such
other manner as is, or may be, prescribed by law. Any amount paid by Landlord
for any of the aforesaid purposes, and all actual legal and other expenses of
Landlord, including actual counsel fees, in or about procuring the discharge of
such lien, together with all necessary disbursements in connection therewith,
and together with interest thereon at the rate of eighteen percent (18%) per
annum, but in no event higher than the legal limit, from the date of payment,
shall be repaid by Tenant to Landlord on demand, and if unpaid may be treated as
additional rent. Nothing herein contained shall imply any consent or agreement
on the part of Landlord to subject Landlord's estate to liability under any
construction lien law.
(b) Prior to the commencement of any work on the Leased Premises, Tenant
shall: (i) file a Notice of Commencement regarding the Leased Premises; and (ii)
provide to Landlord evidence of insurance carried by Tenant's contractors of the
following types and amounts: (1) statutory workers compensation; and (2) general
public liability and property damage insurance naming Landlord as an additional
insured, having as limits of liability a minimum of One Million ($1,000,000.00)
Dollars for damages resulting to one person, Two Million ($2,000,000.00) Dollars
for damages resulting from one casualty, and
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Five Hundred Thousand ($500,000.00) Dollars for property damages resulting from
any one occurrence.
(c) Upon completion of any work on the Leased Premises, Tenant shall
provide to Landlord: (i) paid receipts; (ii) full unconditional waivers of lien,
and/or sworn statement from the general contractor and any and all
subcontractors or materialmen who performed any work, or supplied any materials
to or on the Leased Premises.
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IN WITNESS WHEREOF, the parties hereto have set their hands as of the day
and year first above written.
WITNESSED: LANDLORD
TEN BERG LIMITED PARTNERSHIP
By: NORTH LLC
Its: Management Agent
/s/ Douglas A. Bock
- - ---------------------------
DOUGLAS A. BOCK /s/ Walter Cohen
------------------------------------------
By: Walter Cohen
/s/ Joanna Terry Its: Vice President, Secretary & Treasurer
- - ---------------------------
TENANT
/s/ FOCAL COMMUNICATIONS CORPORATION
- - --------------------------- OF MICHIGAN, a Delaware corporation
/s/ /s/
- - --------------------------- ------------------------------------------------
By: Brian F. Addy
Its: Executive
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EXHIBIT A
SITE LEGAL DESCRIPTION
DESCRIPTION OF A-II OFFICE BUILDING
A PARCEL OF LAND IN THE SOUTHWEST 1/4 OF SECTION 21, TOWN 1 NORTH, RANGE 10
EAST, CITY OF SOUTHFIELD, OAKLAND COUNTY, MICHIGAN DESCRIBED AS FOLLOWS:
COMMENCING AT THE SOUTHWEST CORNER OF SAID SECTION 21, TOWN 1 NORTH, RANGE 10
EAST, AND PROCEEDING THENCE ALONG THE WEST LINE OF SAID SECTION 21 NORTH 01
DEGREES 55 MINUTES 49 SECONDS WEST 60.00 FEET, THENCE NORTH 87 DEGREES 58
MINUTES 25 SECONDS EAST 60.00 FEET TO THE POINT OF BEGINNING OF THE PARCEL
HEREIN DESCRIBED:
THENCE NORTH 01 DEGREES 55 MINUTES 49 SECONDS WEST ALONG THE EASTERLY LINE OF
BERG ROAD (120 FEET WIDE) A DISTANCE OF 604.28 FEET TO A POINT;
THENCE NORTH 87 DEGREES 59 MINUTES 26 SECONDS EAST A DISTANCE OF 37.00 FEET TO A
POINT;
THENCE SOUTH 01 DEGREES 55 MINUTES 49 SECONDS EAST A DISTANCE OF 71.00 FEET TO A
POINT;
THENCE NORTH 87 DEGREES 59 MINUTES 26 SECONDS EAST A DISTANCE OF 319.82 FEET TO
A POINT;
THENCE SOUTH 02 DEGREES 01 MINUTES 35 SECONDS EAST A DISTANCE OF 533.18 FEET TO
A POINT ON THE NORTH LINE OF 10 MILE ROAD (120 FEET WIDE);
THENCE SOUTH 87 DEGREES 58 MINUTES 25 SECONDS WEST ALONG THE NORTH LINE OF SAID
10 MILE ROAD A DISTANCE OF 357.71 FEET TO THE POINT OF BEGINNING OF THE PARCEL
HEREIN DESCRIBED.
CONTAINING 4.434 ACRES OF LAND, MORE OR LESS.
DESCRIPTION OF TEN BERG PARCEL
A PARCEL OF LAND IN THE SOUTHWEST 1/4 OF SECTION 21, TOWN 1 NORTH, RANGE 10
EAST, CITY OF SOUTHFIELD, OAKLAND COUNTY, MICHIGAN DESCRIBED AS FOLLOWS:
COMMENCING AT THE SOUTHWEST CORNER OF SAID SECTION 21, TOWN 1 NORTH, RANGE 10
EAST, AND PROCEEDING THENCE ALONG THE WEST LINE OF SAID SECTION 21 NORTH 01
DEGREES 55 MINUTES 49 SECONDS WEST 60.00 FEET, THENCE NORTH 87 DEGREES 58
MINUTES 25 SECONDS EAST 417.71 FEET TO THE POINT OF BEGINNING OF THE PARCEL
HEREIN DESCRIBED:
THENCE NORTH 02 DEGREES 01 MINUTES 35 SECONDS WEST, A DISTANCE OF 533.18 FEET TO
A POINT;
THENCE NORTH 87 DEGREES 59 MINUTES 26 SECONDS EAST, A DISTANCE OF 383.06 FEET TO
A POINT;
THENCE SOUTH 00 DEGREES 13 MINUTES 03 SECONDS EAST, A DISTANCE OF 533.33 FEET TO
A POINT ON THE NORTH LINE OF 10 MILE ROAD (120 FEET WIDE);
THENCE SOUTH 87 DEGREES 58 MINUTES 25 SECONDS WEST ALONG THE NORTH LINE OF SAID
10 MILE ROAD (120 FEET WIDE) A DISTANCE OF 366.23 FEET TO THE POINT OF BEGINNING
OF THE PARCEL HEREIN DESCRIBED.
CONTAINING 4.585 ACRES OF LAND, MORE OR LESS.
25
<PAGE>
EXHIBIT B
VANGUARD CENTER
(ARTWORK OF BLUEPRINT APPEARS HERE)
26
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
1 The requirements of Tenants will be attended to only upon application
to North LLC Employees of Landlord shall not perform any work or do anything
outside of their regular duties, unless under special instructions from the
office of the Building Manager of the Landlord.
2 Tenants, their clerks or employees, agents, visitors or licensees shall
at no time bring or keep upon their premises any inflammable, combustible or
explosive fluid, chemical or substance without written consent of Landlord.
3 No animals or birds shall be kept in the building, and the use of
premises as sleeping quarters is absolutely prohibited.
4 Canvassing, soliciting and peddling in the building is prohibited and
each Tenant shall co-operate to prevent the same.
5 No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Tenant on any part of the inside or outside
its premises or the building without the written consent of Landlord. In event
of Tenant's violation of this Rule, Landlord may without liability remove same,
and may charge the expense incurred in such removal to the Tenant violating this
Rule. Corridor signs on doors shall be inscribed, painted or affixed for each
Tenant by Landlord at the expense of such Tenant, and shall be of a size, color
and style acceptable to Landlord. Interior door identification shall be affixed
by the Landlord to the wall next to the door. A building directory will be
placed in the first floor lobby by Landlord. Landlord shall have the right to
prohibit any advertising by any Tenant which in Landlord's opinion, tends to
impair the reputation of the Building or its desirability as a high-quality
office building and upon written notice from Landlord, Tenant shall refrain from
or discontinue such advertising.
6 No furniture or other material shall be moved into or out of the
Building without first notifying the Building Manager, and the moving thereof
shall be under his direction and control. In order to minimize inconvenience to
other Tenants, safes, furniture, boxes or other bulky articles shall be
delivered into a Tenant's premises only with the written consent of Landlord,
and then only be means of the elevators or the stairways at such times and in
such manner as Landlord may in writing direct. Safes and other heavy articles
shall be placed by Tenants in such places only as are first approved in writing
by Landlord and any damage done to the Building or to tenants or to other
persons by taking safes or other heavy articles in or out of the premises of the
Building, from overloading a floor, or in any other manner, shall be paid for by
the Tenant causing such damage. Landlord reserves the right to inspect all
freight to be brought into the Building and to
27
<PAGE>
exclude from the building all freight which violates any of these Rules and
Regulations or the lease of which these Rules and Regulations are a part. The
move shall occur during normal building hours, any overtime on the part of
security shall be at Tenant's expense.
7 Business machines and mechanical equipment which cause noise or
vibration that may be transmitted to the structure of the Building or to any
space therein shall be installed and maintained by Tenants at their expense, on
vibration eliminators or other devices sufficient to eliminate such noise and
vibrations.
8 No hand trucks shall be used in any space, or in the public halls of
the Building, except those equipped with pneumatic rubber tires and side guards.
9 Landlord reserves the right to make such other and further reasonable
rules and regulations as in Landlord's judgment may from time to time be needful
for the safety, care and cleanliness of the premises, or the building, and for
the preservation of good order therein, and any such other or further rules and
regulations shall be binding upon all Tenants with the same force and effect as
if they had be inserted herein at the time of the execution hereof.
LANDLORD
TEN BERG LIMITED PARTNERSHIP
By: NORTH LLC
Its: Management Agent
/s/ Douglas A. Bock
- - ---------------------------
DOUGLAS A. BOCK /s/ Walter Cohen
------------------------------------------
By: Walter Cohen
/s/ Joanna Terry Its: Vice President, Secretary & Treasurer
- - ---------------------------
TENANT
FOCAL COMMUNICATIONS CORPORATION
- - --------------------------- OF MICHIGAN, a Delaware corporation
- - --------------------------- ------------------------------------------------
By: Brian F. Addy
Its: Executive Vice President
28
<PAGE>
EXHIBIT D
TENANT ALLOWANCE
Landlord will provide at Landlord's sole cost, a Tenant Improvement Allowance of
$6.25 per square foot for the sole and exclusive purpose of Tenant Improvements
to Suite 100, Vanguard Center. The Tenant Improvements and other matters in
connection therewith shall be governed by the terms and conditions of this Lease
pertinent thereto and that certain Work Letter Agreement attached hereto as
Exhibit G. Any additional costs associated with Improvements shall be the sole
responsibility of Tenant.
29
<PAGE>
EXHIBIT E
CLEANING SPECIFICATIONS
Office Areas -- Nightly No cleaning in switch space.
All linoleum, rubber, asphalt tile and other similar types of flooring (that may
be waxed or treated) to be swept nightly, using approved dust-down preparation.
Waxing at least once per month.
All stone, ceramic, tile, marble terrazzo and other untreated flooring to be
swept nightly, using approved dust-down preparation. Wash such flooring once per
month.
All freight corridors to be washed and waxed weekly.
Vacuum carpeted areas and rugs every night each week, moving light furniture
other than desks, file cabinets, etc.
Sweep private stairways and wash as necessary.
Empty and clean wastepaper baskets, ash trays, receptacles, etc., damp dust
nightly and insert protective paper liners.
Empty and clean all ash trays and screen all sand urns nightly.
Remove wastepaper and waste materials to a designated area in the demised
premises, using special janitor carriages.
Dust and wipe furniture, fixtures, desk equipment displays, telephones and
window sills with impregnated cloths.
Damp wipe window sill coves where condensation occurs. Dust as necessary.
Dust baseboards, chair rails, trim, louvers, pictures, charts, etc., within
reach.
Wash drinking fountains and coolers.
Lavatories -- Nightly
Sweep and wash flooring with approved germicidal detergent solution.
30
<PAGE>
Wash and polish mirrors, powder shelves, bright work, etc., including
flushometers, piping and toilet seat hinges.
Wash both sides of toilet seats, wash basins, bowls and urinals with approved
germicidal detergent solution.
Hand dust and clean partitions, tile walls, dispensers and receptacles, washing
where necessary.
Fill toilet tissue holders.
Empty sanitary disposal receptacles.
Fill soap dispensers and paper towel dispensers.
Empty paper towel receptacles.
Entrance Lobbies - Nightly
Sweep and wash flooring.
Wash floor mats.
Clean cigarette urns and replace sand or water as necessary.
Properly maintain floor or elevator cabs. If carpeted, spots are to be removed
as necessary and shampooed monthly or more often, if necessary or required.
Dust and rub down elevator doors.
Dust and rub down mail chutes, mail depository, etc.
Dust and rub down walls, metal work and saddles in elevator cabs.
Dust walls up to 12 feet and keep free of finger marks, smudges, etc.
Remove snow when necessary.
Remove debris from planters and sidewalks. Water planters as directed.
Office Areas - Periodic Cleaning (Twice Per Year)
Wipe clean all metal hardware and metal fixtures and other bright work.
31
<PAGE>
Remove all scuffs and finger marks from doors. Clean and polish doors.
Hand dust all doors and other ventilating louvers within reach as necessary.
Remove finger marks from metal partitions and other similar surfaces once each
week or as necessary.
Machine scrub flooring with approved germicidal detergent solution as necessary.
Wash partitions, tile walls and enamel surfaces with approved germicidal
detergent solution not less than once every two (2) weeks -- more often if
necessary.
Dust exterior of lighting fixtures once each month.
High dust once each month.
Entrance Lobbies - Periodic Cleaning
Clean all lights, globes and fixtures as necessary in entrance lobbies.
32
<PAGE>
EXHIBIT F
PARKING
Tenant shall have forty (40) reserved parking spaces for employees, and ten (10)
reserved parking spaces for clients, along with: (1) space for Tenant's Focal
Van, which shall not exceed ten (10) spaces, and (2) the non-exclusive use of
the non-reserved areas of the parking lot.
33
<PAGE>
EXHIBIT G
WORK LETTER AGREEMENT
This Work Letter Agreement is supplemental to the terms and provisions
of the Lease to which it is an exhibit and shall, in conjunction with the terms
and conditions of the Lease pertaining to the making of the Tenant Improvements
(as hereinbelow defined) and any alterations to the Leased Premises, govern the
rights and obligations of Landlord and Tenant with respect to the Tenant
Improvements. In consideration of the mutual covenants contained in the Lease
and hereinafter contained, Landlord and Tenant mutually agree as follows:
Definitions: The terms defined in this paragraph, for purposes of this
Work Letter Agreement, shall have the meanings herein specified.
1.01 "Building Standard" means the quality of materials,
finishing and workmanship specified by Landlord for the
Building.
1.02 N/A
1.03 "Tenant Improvements" means those items which are
supplied, installed and furnished by under the terms of
this Work Letter Agreement. In no event shall Tenant Improvements be
deemed to mean Tenant's furniture, special computer requirements or
telephone equipment. The aggregate amount of money to be provided by
Landlord for Tenant Improvements under the Lease is One Hundred Forty-
One Thousand Two Hundred Fifty Dollars ($141,250.00) (subject to
adjustment in accordance with Exhibit D of the Lease), which sum is
inclusive of Tenant's signage requirements, electric metering,
modifications/additions to/installation of a fire suppression system
within the Leased Premises, if needed, including, but not limited to
additional heads if needed (but not including risers, pumps or main
lines either in the Leased Premises or elsewhere in the Building;
provided, further, specifically, the fire suppression system or any
portions thereof in common areas of the Building or not within the
Leased Premises shall not be considered to be a part of the Tenant
Improvements as herein defined), and any and all modifications
necessary to bring the Leased Premises into compliance with applicable
government requirements. Any and all Tenant Improvements shall be
subject to Landlord's prior written approval, which approval shall not
unreasonably be withheld.
1.04 "Landlord's Architect/Engineer" means such person(s) or
firm(s) as may be designated by Landlord.
34
<PAGE>
1.05 "Tenant Improvement Allowance" means a sum of money not to
exceed One Hundred Forty-One Thousand Two Hundred Fifty Dollars
($141,250) (subject to adjustment in accordance with Exhibit D of the
Lease).
Completion of Tenant Improvements:
2.01(a) All work involved in the completion of the Tenant
Improvements shall be carried out by the contractor selected by
Tenant. Such contractor shall be subject to Landlord's approval.
Tenant and Landlord shall cooperate with each other and with the
Contractor(s) to promote the efficient and expeditious completion of
such work. To the extent Landlord disburses more than the Tenant
Improvement Allowance in the completion of the Tenant Improvements,
Tenant will reimburse Landlord such excess within ten (10) days of
written demand therefor accompanied by a breakdown from Landlord of
such excess amount. If Tenant does not reimburse Landlord as provided
in the immediately preceding sentence, Landlord may deduct any such
amount from the security deposit then held by Landlord for Tenant's
performance of its obligations under the Lease and Tenant shall,
forthwith after such deduction replenish the security to its level
immediately prior to such deduction. Any amounts owing by Tenant to
Landlord after application of the Tenant Improvement Allowance shall
be considered additional rent under the Lease and Landlord shall have,
in connection with such amounts due and owing, all of the rights and
remedies granted under the Lease in connection with the enforcement of
collection of rent owing to Landlord thereunder. The Contractor shall
provide full disclosure of all bids and itemized billings of labor and
material paid to all subcontractors used in the work provided if so
requested by Tenant.
(b) Tenant shall prepare and approve a space plan ("Space Plan")
for the Leased Premises by November 15, 1998. Tenant shall submit such
space plans and such other additional information necessary for
Landlord's Architect/Engineer to review and approve, at Landlord's
Architect/Engineer's reasonable discretion, the working drawings and
specifications (the "Plans") for the Leased Premises by December 1,
1998. Landlord's charges to Tenant for reviewing and approving the
Space Plan, the Plans and preparation or obtaining all other
construction documents related to or in connection with the Tenant
Improvements (including, but not limited to building permits,
inspections and other governmental approvals and authorizations) shall
be considered a component of the Tenant Improvements and may be
satisfied from the Tenant Improvement Allowance.
35
<PAGE>
2.02 If there are any changes in Tenant Improvements by or on
behalf of Tenant from the work as reflected in the Plans, each such
change must receive prior written approval of Landlord, and written
acknowledgement from Tenant that any delays caused by Tenant changes
shall not affect the Commencement Date or the date upon which Annual
Base Rent becomes payable.
Commencement of Work; Obligation to Pay Annual Base Rent:
3.01 Tenant's obligation for the payment of Annual Base Rent and
Additional Rent (as such terms are defined in the Lease) shall
commence unconditionally on the date specified in the Lease.
Miscellaneous Provisions: Landlord and Tenant agree as follows:
4.01 For purposes of this Work Letter Agreement, whenever
consent or approval is required to be given by Landlord or Tenant,
such consent or approval shall be deemed to be given or withheld on a
reasonable basis.
4.02 Notices and other such items to be delivered pursuant to
this Work Letter shall be made or given in accordance with the terms
and provisions of the Lease governing the giving of notices.
4.03 In the event that the Tenant Improvements are such that the
Tenant Improvement Allowance is not fully expended by Landlord, Tenant
shall not be entitled to any difference between the amount actually
spent by Landlord to install and construct the Tenant Improvements and
the Tenant Improvement Allowance, said difference being the sole
property of Landlord.
4.04 Anything contained in the Lease and this Work Letter
Agreement to the contrary notwithstanding, any and all work to be done
or materials to be supplied as part of the Tenant Improvements shall
be done or supplied by Landlord or the Contractor at Tenant's cost,
which cost(s) shall either be satisfied by deduction by Landlord from
the Tenant Improvement Allowance or by direct payment from Tenant at
such time as the Tenant Improvement Allowance has been fully
exhausted. Anything contained in the Lease and this Work Letter
Agreement to the contrary notwithstanding, under no circumstances
shall Landlord be obligated to deliver the Leased Premises to Tenant
in any condition other than "as-is, where-is", broom clean, as of the
date that the prior tenant of such space releases the same, and, in
furtherance of the foregoing, any improvements to such space shall
constitute Tenant Improvements, to be made at Tenant's expense.
36
<PAGE>
4.05 Tenant shall have the right to draw upon the Tenant
Improvement Allowance once a month and such draw request and
supporting documentation shall be substantially the same as is usually
required in a typical construction mortgage loan with a financial
institution with a ten percent (10%) retainage and sworn statements
and unconditional waivers of lien (30-day lag will be accepted if
acceptable to Landlord's title company).
LANDLORD
/S/ DOUGLAS A. BOCK By: TEN BERG LIMITED PARTNERSHIP NORTH LLC
- - --------------------------- Its: Management Agent
DOUGLAS A. BOCK
/S/ JOANNA TERRY /S/ WALTER COHEN
- - --------------------------- ---------------------------------------------
By: Walter Cohen
Its: Vice President, Secretary & Treasurer
TENANT
FOCAL COMMUNICATIONS CORPORATION
- - --------------------------- OF MICHIGAN a Delaware corporation
- - --------------------------- ---------------------------------------------
By: Brian F. Addy
Its: Executive Vice President
37
<PAGE>
EXHIBIT H
LANDLORD'S WORK
Landlord shall commence the following activities on or before to October
15, 1998, at Landlord's sole cost and expense, except as noted:
(i) Demolition of the existing improvements, described in the Plans and
Specifications to be provided by Tenant on or before October 1, 1998,
and subject to Landlord's approval. All costs and expenses incurred
by Landlord to perform the activities in this subsection (i) shall be
deducted from the available Tenant Improvement Allowance.
(ii) Prepare demising walls complete to code and taped and beaded and
ready for paint or other finish. All costs and expenses incurred by
Landlord to perform the activities in this subsection (ii) shall be
deducted from the available Tenant Improvement Allowance.
(iii) At Tenant's sole cost and expense, provide dedicated and metered
electrical service of 1200 amps, 480 volts, three phase, four wire
electrical service at the Building main service equipment in the main
electrical service room.
(iv) Provide electrical power distributed to the Leased Premises with a
minimum capacity of 5 watts per rentable square foot available for
lighting and convenience power.
(v) Maintain Leased Premises free of all debris and broom clean.
(vi) Install building standard window treatments on all exterior windows
throughout Leased Premises.
(vii) The base building and all building systems (including, without
limitation, HVAC equipment) shall be in good working order and
condition and comply with all applicable local, state and federal
codes, laws or statutes and shall remain the responsibility of
Landlord until Tenant receives possession of the Leased Premises.
38
<PAGE>
EXHIBIT I
GENERATOR LOCATION
[BLUEPRINT APPEARS HERE]
39
<PAGE>
10.4
================================================================================
AGREEMENT OF LEASE
between
ONE PENN PLAZA LLC
Landlord
and
FOCAL COMMUNICATIONS CORP.
Tenant
Portion of the 28th Floor
One Penn Plaza
New York, New York
PROSKAUER ROSE LLP
1585 Broadway
New York, New York 10036-8299
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C>
DEFINITIONS.................................................................. 1
ARTICLE 1- DEMISE, PREMISES, TERM, RENT................................. 9
ARTICLE 2- USE AND OCCUPANCY............................................ 10
ARTICLE 3- ALTERATIONS.................................................. 10
ARTICLE 4- REPAIRS-FLOOR LOAD........................................... 16
ARTICLE 5- WINDOW CLEANING.............................................. 17
ARTICLE 6- REQUIREMENTS OF LAW.......................................... 17
ARTICLE 7- SUBORDINATION................................................ 19
ARTICLE 8- RULES AND REGULATIONS........................................ 22
ARTICLE 9- INSURANCE, PROPERTY LOSS OR DAMAGE; REIMBURSEMENT............ 22
ARTICLE 10- DESTRUCTION-FIRE OR OTHER CAUSE.............................. 25
ARTICLE 11- EMINENT DOMAIN............................................... 28
ARTICLE 12- ASSIGNMENT, SUBLETTING, MORTGAGE, ETC........................ 30
ARTICLE 13- ELECTRICITY.................................................. 42
ARTICLE 14- ACCESS TO PREMISES........................................... 46
ARTICLE 15- CERTIFICATE OF OCCUPANCY..................................... 48
ARTICLE 16- DEFAULT...................................................... 49
ARTICLE 17- REMEDIES AND DAMAGES......................................... 52
ARTICLE 18- LANDLORD FEES AND EXPENSES................................... 54
ARTICLE 19- NO REPRESENTATIONS BY LANDLORD............................... 55
ARTICLE 20- END OF TERM.................................................. 55
ARTICLE 21- QUIET ENJOYMENT.............................................. 56
ARTICLE 22- FAILURE TO GIVE POSSESSION................................... 56
ARTICLE 23- NO WAIVER.................................................... 57
ARTICLE 24- WAIVER OF TRIAL BY JURY...................................... 58
ARTICLE 25- INABILITY TO PERFORM......................................... 58
ARTICLE 26- BILLS AND NOTICES............................................ 59
ARTICLE 27- ESCALATION................................................... 59
ARTICLE 28- SERVICES..................................................... 67
ARTICLE 29- PARTNERSHIP TENANT........................................... 70
ARTICLE 30- VAULT SPACE.................................................. 71
ARTICLE 31- SECURITY..................................................... 71
ARTICLE 32- CAPTIONS..................................................... 73
ARTICLE 33- PARTIES BOUND................................................ 73
ARTICLE 34- BROKER....................................................... 73
ARTICLE 35- INDEMNITY.................................................... 73
ARTICLE 36- ADJACENT EXCAVATION-SHORING.................................. 75
ARTICLE 37- MISCELLANEOUS................................................ 75
ARTICLE 38- RENT CONTROL................................................. 77
</TABLE>
<PAGE>
Schedule A - Rules and Regulations
Schedule B - Cleaning Specifications
EXHIBIT "A" - Floor Plan
EXHIBIT "B" - List of Approved Contractors
EXHIBIT "C" - HVAC Specifications
<PAGE>
AGREEMENT OF LEASE, made as of the 25th day of September, 1998, between
Landlord and Tenant.
WITNESSETH:
-----------
The parties hereto, for themselves, their legal representatives, successors
and assigns, hereby covenant as follows.
DEFINITIONS
-----------
"ACM" shall have the meaning set forth in Section 19.2 hereof.
"Affiliate" shall mean a Person which shall (1) Control (2) be under the
Control of, or (3) be under common Control with the Person in question.
"Alteration Fee" shall have the meaning set forth in Section 3.2 hereof.
"Alterations" shall mean alterations, installations, improvements,
additions or other physical changes (other than decorations) in or about the
Premises.
"Applicable Rate" shall mean the lesser of (x) two (2) percentage points
above the then current Base Rate, and (y) the maximum rate permitted by
applicable law.
"Assessed Valuation" shall have the meaning set forth in Section 27.1
hereof.
"Assignment Proceeds" shall have the meaning set forth in Section 12.8
hereof.
"Assignment Statement" shall have the meaning set forth in Section 12.8
hereof.
"Bankruptcy Code" shall mean 11 U.S.C. Section 101 et seq, or any statute
of similar nature and purpose.
"Base Electric Rate" shall mean the Electric Rate as of the date hereof.
"Base Operating Expenses" shall have the meaning set forth in Section 27.1
hereof.
"Base Operating Year" shall have the meaning set forth in Section 27.1
hereof.
<PAGE>
"Base Rate" shall mean the rate of interest publicly announced from time to
time by The Chase Manhattan Bank, N.A., or its successor, as its "prime lending
rate" (or such other term as may be used by The Chase Manhattan Bank, N.A., from
time to time, for the rate presently referred to as its "prime lending rate"),
which rate was 8.50% on August 18, 1998.
"Base Taxes" shall have the meaning set forth in Section 27.1 hereof.
"Broker" shall have the meaning set forth in Article 34 hereof.
"Building" shall mean all the buildings, equipment and other improvements
and appurtenances of every kind and description now located or hereafter
erected, constructed or placed upon the land and any and all alterations, and
replacements thereof, additions thereto and substitutions therefor, known by the
address of One Penn Plaza, New York, New York.
"Building Systems" shall mean the mechanical, gas, electrical, sanitary,
heating, air conditioning, ventilating, elevator, plumbing, life-safety and
other service systems of the Building.
"Business Days" shall mean all days, excluding Saturdays, Sundays and all
days observed by either the State of New York or the Federal Government and by
the labor unions servicing the Building as legal holidays.
"Commencement Date" shall have the meaning set forth in Section 1.1
hereof.
"Control" or "control" shall mean direct or indirect ownership of more than
fifty percent (50%) of the outstanding voting stock of a corporation or other
majority equity and control interest if not a corporation and the possession,
directly or indirectly, of power to direct or cause the direction of the
management and policy of such corporation or other entity, whether through the
ownership of voting securities, by statute or according to the provisions of a
contract.
"Current Year" shall have the meaning set forth in Section 27.4 hereof.
"Deficiency" shall have the meaning set forth in Section 17.2 hereof.
"Electric Rate" shall have the meaning set forth in Section 13.3 hereof.
"Electricity Additional Rent" shall have the meaning set forth in Section
13.3 hereof.
"Electricity Inclusion Factor" shall have the meaning set forth in Section
13.2 hereof.
"Electricity Statement" shall have the meaning set forth in Section 13.2
hereof.
"Escalation Rent" shall mean, individually or collectively, the Tax Payment
and the Operating Payment.
2
<PAGE>
"Event of Default" shall have the meaning set forth in Section 16.1 hereof.
"Expiration Date" shall mean the Fixed Expiration Date or such earlier date
on which the Term shall sooner end pursuant to any of the terms, conditions or
covenants of this Lease or pursuant to law.
"1st Rental Period" shall have the meaning set forth in Section 1.1 hereof.
"1st Security Period" shall mean the period commencing on the Commencement
Date and ending on the day immediately preceding the first (1st) anniversary of
the Rent Commencement Date.
"Fixed Expiration Date" shall have the meaning set forth in Section 1.1
hereof.
"Fixed Rent" shall have the meaning set forth in Section 1.1 hereof.
"4th Security Period" shall mean the period commencing on the third (3rd)
anniversary of the Rent Commencement Date and ending on the Fixed Expiration
Date.
"Full Value" shall have the meaning set forth in Section 13.2 hereof.
"Governmental Authority (Authorities)" shall mean the United States of
America, the State of New York, the City of New York, any political subdivision
thereof and any agency, department, commission, board, bureau or instrumentality
of any of the foregoing, or any quasi-governmental authority, now existing or
hereafter created, having jurisdiction over the Real Property or any portion
thereof.
"HVAC" shall mean heat, ventilation and air conditioning.
"HVAC Systems" shall mean the Building Systems providing HVAC.
"Indemnitees" shall mean Landlord, the partners comprising Landlord and its
and their members, partners, shareholders, officers, directors, employees,
agents and contractors, Lessors and Mortgagees.
"Initial Alterations" shall mean the Alterations to be made by Tenant to
initially prepare the Premises for Tenant's occupancy.
"Landlord", on the date as of which this Lease is made, shall mean One Penn
Plaza LLC, a New York limited liability company, having an office c/o MRC
Management LLC, at 330 Madison Avenue, New York, New York 10017, but thereafter,
"Landlord" shall mean only the fee owner of the Real Property or if there shall
exist a Superior Lease, the tenant thereunder.
3
<PAGE>
"Landlord's Engineer" shall have the meaning set forth in Section 13.2
hereof.
"Lessor(s)" shall mean a lessor under a Superior Lease.
"Letter of Credit" shall have the meaning set forth in Section 31.1 hereof.
"Long Lead Work" shall mean any item which is not a stock item and must be
specially manufactured, fabricated or installed or is of such an unusual,
delicate or fragile nature that there is a substantial risk that
(i) there will be a delay in its manufacture, fabrication, delivery or
installation, or
(ii) after delivery, such item will need to be reshipped or
redelivered or repaired
so that in Landlord's reasonable judgment the item in question cannot be
completed when the standard items are completed even though the item of Long
Lead Work in question is (1) ordered together with the other items required and
(2) installed or performed (after the manufacture or fabrication thereof) in the
order and sequence that such Long Lead Work and other items are normally
installed or performed in accordance with good construction practice. In
addition, "Long Lead Work" shall include any standard item which in accordance
with good construction practice should be completed after the completion of any
item of work in the nature of the items described in the immediately preceding
sentence.
"Mortgage(s)" shall mean any trust indenture or mortgage which may now or
hereafter affect the Real Property, the Building or any Superior Lease and the
leasehold interest created thereby, and all renewals, extensions, supplements,
amendments, modifications, consolidations and replacements thereof or thereto,
substitutions therefor, and advances made thereunder.
"Mortgagee(s)" shall mean any trustee, mortgagee or holder of a Mortgage.
"Operating Expenses" shall have the meaning set forth in Section 27.1
hereof.
"Operating Payment" shall have the meaning set forth in Section 27.4
hereof.
"Operating Statement" shall have the meaning set forth in Section 27.1
hereof.
"Operating Year" shall have the meaning set forth in Section 27.1 hereof.
"Operation of the Property" shall mean the maintenance, repair and
management of the Real Property and the curbs, sidewalks and areas adjacent
thereto.
"Overtime Periods" shall have the meaning set forth in Section 28.3 hereof.
4
<PAGE>
"Parties" shall have the meaning set forth in Section 37.2 hereof.
"Partner" or "partner" shall mean any partner of Tenant, any employee of a
professional corporation which is a partner comprising Tenant, and any
shareholder of Tenant if Tenant shall become a professional corporation.
"Partnership Tenant" shall have the meaning set forth in Article 29 hereof.
"Person(s) or person(s)" shall mean any natural person or persons, a
partnership, a corporation and any other form of business or legal association
or entity.
"Premises" shall mean, subject to the provisions of Section 14.4 hereof,
the portion of the twenty-eighth (28th) floor (Suite 2832) of the Building as
set forth on the floor plan attached hereto and made a part hereof as Exhibit
"A".
"Prevailing Rate" shall have the meaning set forth in Section 12.6 hereof.
"Real Property shall mean the Building, together with the plot of land upon
which it stands.
"Recapture Space" shall have the meaning set forth in Section 12.6 hereof.
"Recapture Sublease" shall have the meaning set forth in Section 12.6
hereof.
"Related Entity" shall have the meaning set forth in Section 12.4 hereof.
"Rental" shall mean and be deemed to include Fixed Rent, Escalation Rent,
all additional rent and any other sums payable by Tenant hereunder.
"Rent Commencement Date" shall mean the date which shall be ninety (90)
days after the Commencement Date.
"Replaced Premises" shall have the meaning set forth in Section 37.12
hereof.
"Requirements" shall mean all present and future laws, rules, orders,
ordinances, regulations, statutes, requirements, codes and executive orders,
extraordinary as well as ordinary, of all Governmental Authorities now existing
or hereafter created, and of any and all of their departments and bureaus, and
of any applicable fire rating bureau, or other body exercising similar
functions, affecting the Real Property or any portion thereof, or any street,
avenue or sidewalk comprising a part of or in front thereof or any vault in or
under the same, or requiring removal of any encroachment, or affecting the
maintenance, use or occupation of the Real Property or any portion thereof.
"Rules and Regulations" shall mean the rules and regulations annexed hereto
and made a part
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hereof as Schedule A, and such other and further rules and regulations as
Landlord or Landlord's agents may from time to time adopt on such notice to be
given as Landlord may elect, subject to Tenant's right to dispute the
reasonableness thereof as provided in Article 8 hereof.
"2nd Rental Period" shall have the meaning set forth in Section 1.1 hereof.
"2nd Security Period" shall mean the period commencing on the first (1st)
anniversary of the Rent Commencement Date and ending on the day immediately
preceding the second (2nd) anniversary of the Rent Commencement Date.
"Security Amount" shall mean:
(a) during the 1st Security Period, One Hundred Six Thousand Four
Hundred Twenty-Eight Dollars ($106,428.00), and
(b) during the 2nd Security Period, Eighty-Five Thousand One Hundred
Forty-Two and 40/100 Dollars ($85,142.40);
(c) during the 3rd Security Period, Sixty-Three Thousand Eight Hundred
Fifty-Six and 80/100 Dollars ($63,856.80); and
(d) during the 4th Security Period, Forty-Two Thousand Five Hundred
Seventy-One and 20/100 Dollars ($42,571.20).
"Space Factor" shall mean Seven Thousand Six Hundred Two (7,602) as the
same may be increased or decreased pursuant to the terms hereof.
"Specialty Alterations" shall mean Alterations consisting of kitchens,
executive bathrooms, raised computer floors, computer installations, vaults,
libraries, internal staircases, dumbwaiters, pneumatic tubes, vertical and
horizontal transportation systems, and other Alterations of a similar character.
"Sublease Expenses" shall have the meaning set forth in Section 12.7
hereof.
"Sublease Profit" shall have the meaning set forth in Section 12.7 hereof.
"Sublease Rent" shall have the meaning set forth in Section 12.7 hereof.
"Substitute Premises" shall have the meaning set forth in Section 37.12
hereof.
"Substitution Date" shall have the meaning set forth in Section 37.12
hereof.
"Superior Lease(s)" shall mean all ground or underlying leases of the Real
Property or the
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Building and all renewals, extensions, supplements, amendments and modifications
thereof.
"Taxes" shall have the meaning set forth in Section 27.1 hereof.
"Tax Payment" shall have the meaning set forth in Section 27.2 hereof.
"Tax Statement" shall have the meaning set forth in Section 27.1 hereof.
"Tax Year" shall have the meaning set forth in Section 27.1 hereof.
"Tenant" on the date as of which this Lease is made, shall mean Focal
Communications Corp., a Delaware corporation, having an office at 200 N. LaSalle
Street, Chicago, IL 60601 but thereafter "Tenant" shall mean only the tenant
under this Lease at the time in question; provided, however, that the originally
named tenant and any assignee of this Lease shall not be released from liability
hereunder in the event of any assignment of this Lease.
"Tenant Fund" shall have the meaning set forth in Section 3.4 hereof.
"Tenant Statement" shall have the meaning set forth in Section 12.6
hereof.
"Tenant's Engineer" shall have the meaning set forth in Section 13.2
hereof.
"Tenant's Property" shall mean Tenant's movable fixtures and movable
partitions, telephone and other equipment, furniture, furnishings, decorations
and other items of personal property.
"Tenant's Share" shall mean Three Thousand Nine Hundred Forty-Two ten
thousandths percent (0.3942%) as the same may be increased or decreased pursuant
to the terms hereof.
"Tenant's Tax Share" shall mean Three Thousand Six Hundred Sixty-Nine ten
thousandths percent (0.3669%) as the same may be increased or decreased pursuant
to the terms hereof.
"Tentative Monthly Escalation Charge" shall have the meaning set forth in
Section 27.4 hereof.
"Term" shall mean a term which shall commence on the Commencement Date and
shall expire on the Expiration Date.
"Third Engineer" shall have the meaning set forth in Section 13.3 hereof.
"3rd Security Period" shall mean the period commencing on the second (2nd)
anniversary of the Rent Commencement Date and ending on the day immediately
preceding the third (3rd) anniversary of the Rent Commencement Date.
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"Unavoidable Delays" shall have the meaning set forth in Article 25
hereof.
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ARTICLE 1
DEMISE, PREMISES, TERM, RENT
----------------------------
Section 1.1. Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord the Premises for the Term to commence on the date hereof (the
"Commencement Date") and to end on the date (the "Fixed Expiration Date") which
is the last day of the month in which the day immediately preceding the fifth
(5th) anniversary of the Rent Commencement Date shall occur, at an annual rent
(the "Fixed Rent") of:
(1) Three Hundred Four Thousand Eighty Dollars ($304,080.00) for the
period (the "1st Rental Period") commencing on the Rent Commencement Date and
ending on the day immediately preceding the date which is two and one-half (2.5)
years after the Commencement Date, or if the Commencement Date shall occur other
than on the first day of the month, ending on the last day of the month in which
the date which is two and one-half (2.5) years after the Commencement Date
occurs ($25,340.00 per month);
(2) Three Hundred Nineteen Thousand Two Hundred Eighty-Four Dollars
($319,284.00) for the period (the "2nd Rental Period") commencing on the day
next succeeding the end of the 1st Rental Period and ending on the Fixed
Expiration Date ($26,607.00 per month), and which Tenant agrees to pay in lawful
money of the United States which shall be legal tender in payment of all debts
and dues, public and private, at the time of payment, in equal monthly
installments in advance, on the first (1st) day of each calendar month during
the Term commencing on the Rent Commencement Date, at the office of Landlord or
such other place as Landlord may designate, without any set-off, offset,
abatement or deduction whatsoever, except that Tenant shall pay the first full
monthly installment on the execution hereof. At the request of Landlord, Fixed
Rent shall be payable when due by wire transfer of funds to an account
designated from time to time by Landlord.
Section 1.2. If the Rent Commencement Date shall occur on a date other than
the first (1st) day of any calendar month, then, on the Rent Commencement Date
Tenant shall pay to Landlord a sum equal to Eight Hundred Forty-Four and 67/100
Dollars ($844.67), multiplied by the number of calendar days in the period from
the Rent Commencement Date to the last day of the month in which the Rent
Commencement Date shall occur, both dates inclusive.
Section 1.3. Tenant shall pay to Landlord, as additional rent, on account
of electricity consumed at the Premises the sum of Two Thousand One Hundred
Eighty-Five and 58/100 Dollars ($2,185.58) per month during the period
commencing on the Commencement Date and ending on the day immediately preceding
the Rent Commencement Date. If such period shall commence or end on a date other
than the first (1st) day of a calendar month, such monthly amount on account of
electricity shall be appropriately adjusted.
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ARTICLE 2
USE AND OCCUPANCY
-----------------
Section 2.1. Tenant shall use and occupy the Premises as general and
executive offices, uses incidental thereto and for no other purpose.
Section 2.2. (A) Tenant shall not use the Premises or any part thereof, or
permit the Premises or any part thereof to be used, (1) for the business of
photographic, multilith or multigraph reproductions or offset printing, except
in connection with, either directly or indirectly, Tenant's own business and/or
activities, (2) for a banking, trust company, depository, guarantee or safe
deposit business, (3) as a savings bank, a savings and loan association, or as a
loan company, (4) for the sale of travelers checks, money orders, drafts,
foreign exchange or letters of credit or for the receipt of money for
transmission, (5) as a stockbroker's or dealer's office or for the underwriting
or sale of securities, (6) by the United States government, the City or State of
New York, any foreign government, the United Nations or any agency or department
of any of the foregoing or any other Person having sovereign or diplomatic
immunity, (7) as a restaurant or bar or for the sale of confectionery, soda or
other beverages, sandwiches, ice cream or baked goods or for the preparation,
dispensing or consumption of food or beverages in any manner whatsoever, except
for consumption by Tenant's officers, employees and business guests, (8) as an
employment agency, executive search firm or similar enterprise, labor union,
school, or vocational training center (except for the training of employees of
Tenant intended to be employed at the Premises), or (9) as a barber shop or
beauty salon.
(B) In connection with, and incidental to, Tenant's use of the
Premises for general and executive offices as provided in this Article 2,
Tenant, at its sole cost and expense and upon compliance with all applicable
Requirements, may install a "dwyer" or similar unit in the Premises for the
purpose of warming food for the officers, employees and business guests of
Tenant (but not for use as a public restaurant), provided that Tenant shall
obtain all permits required by any Governmental Authorities for the operation
thereof and such installation shall comply with the provisions of this Lease,
including, without limitation, Article 3 hereof. Tenant may also install, at its
sole cost and expense and subject to and in compliance with the provisions of
Articles 3 and 4 hereof, vending machines for the exclusive use of the officers,
employees and business guests of Tenant, each of which vending machines (if it
dispenses any beverages or other liquids or refrigerates) shall have a
waterproof pan located thereunder, connected to a drain.
ARTICLE 3
ALTERATIONS
-----------
Section 3.1. (A) Tenant shall not make any Alterations without Landlord's
prior consent. Landlord shall not unreasonably withhold or delay its consent to
any proposed nonstructural Alterations, provided that such Alterations (i) are
not visible from the outside of the Building, (ii) do not affect any part of the
Building other than the Premises or require any alterations, installations,
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improvements, additions or other physical charges to the performed in or made to
any portion of the Building or the Real Property other than the Premises, (iii)
do not affect any service required to be furnished by Landlord to Tenant or to
any other tenant or occupant of the Building, (iv) do not affect the proper
functioning of any Building System, (v) do not reduce the value or utility of
the Building, and (vi) do not affect the certificate of occupancy for the
Building or the Premises.
(B) (1) Prior to making any Alterations, including, without
limitation, the Initial Alterations, Tenant shall (i) submit to Landlord
detailed plans and specifications (including layout, architectural, mechanical
and structural drawings) for each proposed Alteration and shall not commence any
such Alteration without first obtaining Landlord's approval of such plans and
specifications, which, in the case of nonstructural Alterations which meet the
criteria set forth in Section 3.1(A) above, shall not be unreasonably withheld
or delayed, (ii) at Tenant's expense, obtain all permits, approvals and
certificates required by any Governmental Authorities, it being agreed that all
filings with Governmental Authorities to obtain such permits, approvals and
certificates shall be made, at Tenant's expense, by a Person designated by
Landlord (provided the rates of such Person are commercially competitive), and
(iii) furnish to Landlord duplicate original policies or certificates thereof of
worker's compensation (covering all persons to be employed by Tenant, and
Tenant's contractors and subcontractors in connection with such Alteration) and
comprehensive public liability (including property damage coverage) insurance in
such form, with such companies, for such periods and in such amounts as Landlord
may reasonably approve, naming Landlord and its agents, any Lessor and any
Mortgagee, as additional insureds. Upon completion of such Alteration, Tenant,
at Tenant's expense, shall obtain certificates of final approval of such
Alteration required by any Governmental Authority and shall furnish Landlord
with copies thereof, or "field" plans and specifications for such Alterations
reflecting the final installations prepared by, or on behalf of, Tenant, it
being agreed that all filings with Governmental Authorities to obtain such
permits, approvals and certificates shall be made, at Tenant's expense, by a
Person designated by Landlord (provided the rates of such Person are
commercially competitive). All Alterations shall be made and performed
substantially in accordance with the plans and specifications therefor as
approved by Landlord, all Requirements, the Rules and Regulations, and all rules
and regulations relating to Alterations promulgated by Landlord in its
reasonable judgment. All materials and equipment to be incorporated in the
Premises as a result of any Alterations or a part thereof shall be first quality
and no such materials or equipment (other than Tenant's Property) shall be
subject to any lien, encumbrance, chattel mortgage or title retention or
security agreement. In addition, no Alteration shall be undertaken prior to
Tenant's delivering to Landlord either (i) a performance bond and labor and
materials payment bond (issued by a surety company and in form reasonably
satisfactory to Landlord), each in an amount equal to 120% of the cost of such
Alteration (as reasonably estimated by Landlord's architect, engineer, or
contractor), or (ii) such other security as shall be reasonably satisfactory to
Landlord or required by any Mortgagee or Lessor. If, as a result of any
Alterations performed by Tenant, including, without limitation, the Initial
Alterations, any alterations, installations, improvements, additions or other
physical changes are required to be performed or made to any portion of the
Building or the Real Property other than the Premises in order to comply with
any Requirement(s), which alterations, installations, improvements, additions or
other physical changes would not otherwise have had to be performed or made
pursuant to applicable
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Requirement(s) at such time, Landlord, at Tenant's sole cost and expense, may
perform or make such alterations, installations, improvements, additions or
other physical changes and take such actions as Landlord shall deem reasonably
necessary and Tenant, within ten (10) days after demand therefor by Landlord,
shall provide Landlord with such security as Landlord shall reasonably require,
in an amount equal to 120% of the cost of such alterations, installations,
improvements, additions or other physical changes, as reasonably estimated by
Landlord's architect, engineer or contractor. All Alteration(s) shall be
performed only under the supervision of an independent licensed architect
approved by Landlord, which approval shall not be unreasonably withheld.
(2) Subject to Section 3.1(A) above, Landlord reserves the right
to disapprove any plans and specifications in part, to reserve approval of items
shown thereon pending its review and approval of other plans and specifications,
and to condition its approval upon Tenant making revisions to the plans and
specifications or supplying additional information. Any review or approval by
Landlord of any plans and/or specifications or any preparation or design of any
plans by Landlord's architect or engineer (or any architect or engineer
designated by Landlord) with respect to any Alteration is solely for Landlord's
benefit, and without any representation or warranty whatsoever to Tenant or any
other Person with respect to the compliance thereof with any Requirements, the
adequacy, correctness or efficiency thereof or otherwise.
(C) Tenant shall be permitted to perform Alterations during the hours
of 8:00 A.M. to 6:00 P.M. on Business Days, provided that such work shall not
interfere with or interrupt the operation and maintenance of the Building or
unreasonably interfere with or interrupt the use and occupancy of the Building
by other tenants in the Building. Otherwise, Alterations shall be performed at
such times and in such manner as Landlord may from time to time reasonably
designate. All Tenant's Property installed by Tenant and all Alterations in and
to the Premises which may be made by Tenant at its own cost and expense prior to
and during the Term, shall remain the property of Tenant. Upon the Expiration
Date, Tenant shall remove Tenant's Property from the Premises and, at Tenant's
option, Tenant also may remove, at Tenant's cost and expense, all Alterations
made by Tenant to the Premises, provided, however, in any case, that Tenant
shall repair and restore in a good and workerlike manner to good condition any
damage to the Premises or the Building caused by such removal. Notwithstanding
the foregoing, however, provided that Tenant submits to Landlord together with
Tenant's submission of plans and specifications for Alterations (including,
without limitation, the Initial Alterations) for Landlord's review, a statement
directing Landlord's attention to the provisions of this Section 3.1(C) with
respect to Landlord's obligation to notify Tenant which Alterations (including,
without limitation, the Initial Alterations) constitute Specialty Alterations
and whether Landlord will require Tenant to remove such Specialty Alterations,
and in the event Landlord requires such removal, Tenant shall remove such
Specialty Alterations on or prior to the Expiration Date and, in each case,
repair in a good and workerlike manner to good condition any damage to the
Premises or the Building caused by such removal. Notwithstanding the foregoing
(but except as provided in the preceding sentence), however, Landlord, upon
notice given at least thirty (30) days prior to the Fixed Expiration Date or
upon such shorter notice as is reasonable under the circumstances upon the
earlier expiration of the Term, may require Tenant to remove any Specialty
Alterations, and to repair and restore in a good and
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workerlike manner to good condition any damage to the Premises or the Building
caused by such removal.
(D) (1) All Alterations shall be performed, at Tenant's sole cost and
expense, by Landlord's contractor(s) or by contractors, subcontractors or
mechanics approved by Landlord. Prior to making an Alteration, at Tenant's
request, Landlord shall furnish Tenant with a list of contractors who may
perform Alterations to the Premises on behalf of Tenant (it being agreed that
the list of contractors approved by Landlord with respect to the Initial
Alterations is attached hereto and made a part hereof as Exhibit "B". If Tenant
engages any contractor set forth on the list, Tenant shall not be required to
obtain Landlord's consent for such contractor unless, prior to the earlier of
(a) entering into a contract with such contractor, and (b) the commencement of
work by such contractor, Landlord shall notify Tenant that such contractor has
been removed from the list.
(2) Notwithstanding the foregoing, with respect to any Alteration
affecting any Building System, (i) Tenant shall select a contractor from a list
of approved contractors furnished by Landlord to Tenant (containing at least
three (3) contractors) and (ii) the Alteration shall, at Tenant's cost and
expense, be designed by Landlord's engineer for the relevant Building System.
(E) Any mechanic's lien filed against the Premises or the Real
Property for work claimed to have been done for, or materials claimed to have
been furnished to, Tenant shall be discharged by Tenant within thirty (30) days
after Tenant shall have received notice thereof (or such shorter period if
required by the terms of any Superior Lease or Mortgage), at Tenant's expense,
by payment or filing the bond required by law. Tenant shall not, at any time
prior to or during the Term, directly or indirectly employ, or permit the
employment of, any contractor, mechanic or laborer in the Premises, whether in
connection with any Alteration or otherwise, if such employment would interfere
or cause any conflict with other contractors, mechanics or laborers engaged in
the construction, maintenance or operation of the Building by Landlord, Tenant
or others, or of any adjacent property owned by Landlord. In the event of any
such interference or conflict, Tenant, upon demand of Landlord, shall cause all
contractors, mechanics or laborers causing such interference or conflict to
leave the Building immediately.
(F) Tenant shall commence performance of the Initial Alterations by
not later than thirty (30) days after the Commencement Date, subject to
extension by reason of delays out of Tenant's reasonable control, shall
thereafter diligently continuously prosecute the same to completion, and shall
substantially complete the Initial Alterations on or before the date which is
ninety (90) days after the Commencement Date, subject to extension by reason of
delays out of Tenant's reasonable control.
Section 3.2. Tenant shall pay to Landlord or to Landlord's agent, as
additional rent, all actual third-party out-of-pocket costs and expenses
incurred by Landlord or Landlord's agent in connection with any Alterations,
including, without limitation, the Initial Alterations (the "Alteration Fee").
The Alteration Fee shall be paid by Tenant within fifteen (15) Business Days
after demand therefor.
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Tenant also shall pay any fee charged by any Lessor or Mortgagee in reviewing
the plans and specifications for such Alterations or inspecting the progress of
completion of the same.
Section 3.3. Upon the request of Tenant, Landlord, at Tenant's cost and
expense, shall join in any applications for any permits, approvals or
certificates required to be obtained by Tenant in connection with any permitted
Alteration (provided that the provisions of the applicable Requirement shall
require that Landlord join in such application) and shall otherwise cooperate
with Tenant in connection therewith, provided that Landlord shall not be
obligated to incur any cost or expense, including, without limitation,
attorneys' fees and disbursements, or suffer any liability in connection
therewith.
Section 3.4. (A) Landlord shall contribute an amount not to exceed One
Hundred Fifty-Two Thousand Forty Dollars ($152,040.00) (the "Tenant Fund")
toward (i) the "hard" cost of the Initial Alterations, and (ii) architect's and
engineering fees, permit fees, expediter's fees and designers' fees in
connection with the Initial Alterations (such "soft costs" and related costs
referred to in this clause (ii) incurred by Tenant in connection with the
Initial Alterations being collectively referred to herein as "Related Costs").
(B) Landlord shall disburse a portion of the Tenant Fund to Tenant
from time to time, within thirty (30) days after receipt of the items set forth
in Section 3.4(C) hereof, provided that on the date of a request and on the date
of disbursement from the Tenant Fund no Event of Default shall have occurred and
be continuing. Disbursements from the Tenant Fund shall not be made more
frequently than monthly, and shall be in an amount equal to the aggregate
amounts theretofore paid or payable (as certified by an officer of Tenant of the
rank of vice-president or higher authorized to make such certification, and
Tenant's independent, licensed architect) to Tenant's contractors,
subcontractors and materialmen which have not been the subject of a previous
disbursement from the Tenant Fund multiplied by a fraction, the numerator of
which is One Hundred Fifty-Two Thousand Forty Dollars ($152,040.00) and the
denominator of which is the total cost of the Initial Alterations as estimated
by Tenant's independent licensed architect and as approved by Landlord (which
approval shall not be unreasonably withheld), which fraction shall be subject to
readjustment as provided by Section 3.4(C) hereof (but in no event shall such
fraction be greater than one (1)); provided, however, that (i) in no event shall
Tenant be entitled to a disbursement from the Tenant Fund on account of Related
Costs unless and until Tenant shall have received its first disbursement of the
Tenant Fund for the cost of the Initial Alterations (other than Related Costs),
and (ii) in no event shall disbursements of the Tenant Fund on account of
Related Costs exceed Fifteen Thousand Two Hundred Four Dollars ($15,204.00).
(C) Landlord's obligation to make disbursements from the Tenant Fund
shall be subject to Landlord's verification of the total cost of the Initial
Alterations as estimated by Tenant's independent licensed architect and receipt
of: (a) a request for such disbursement from Tenant signed by an officer of
Tenant of the rank of vice-president or higher authorized to make such request,
together with the certification required by Section 3.4(B) hereof, (b) copies of
all receipts, invoices and bills for the work completed and materials furnished
in connection with the Initial
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Alterations and incorporated in the Premises which are to be paid from the
requested disbursement or which have been paid by Tenant and for which Tenant is
seeking reimbursement, (c) copies of all contracts, work orders, change orders
and other materials relating to the work or materials which are the subject of
the requested disbursement or reimbursement, (d) if requested by Landlord,
waivers of lien from all contractors, subcontractors and materialmen involved in
the performance of the Initial Alterations relating to the portion of the
Initial Alterations theretofore performed and materials theretofore provided and
for which previous disbursements and/or the requested disbursement has been or
is to be made (except to the extent such waivers of lien were previously
furnished to Landlord upon a prior request), (e) a certificate of Tenant's
independent licensed architect stating (i) that, in his opinion, the portion of
the Initial Alterations theretofore completed and for which the disbursement is
requested was performed in a good and workerlike manner and substantially in
accordance with the final detailed plans and specifications for such Initial
Alterations, as approved by Landlord, (ii) the percentage of completion of the
Initial Alterations as of the date of such certificate, and (iii) the revised
estimated total cost to complete the Initial Alterations and (f) the amount of
the Alteration Fee then payable pursuant to Section 3.2 hereof. If the revised
estimated total cost of the Initial Alterations increases above the original
estimated total cost of the Initial Alterations by more than five percent (5%),
then the denominator of the fraction referred to in Section 3.4(B) hereof shall
be adjusted appropriately.
(D) In no event shall the aggregate amount paid by Landlord to Tenant
under this Section 3.4 exceed the amount of the Tenant Fund. Upon the completion
of the Initial Alterations and satisfaction of the conditions set forth in
Section 3.4(E) hereof, any amount of the Tenant Fund which has not been
previously disbursed shall be retained by Landlord. Upon the disbursement of the
entire Tenant Fund (or the portion thereof if upon completion of the Initial
Alterations the Tenant Fund is not exhausted), Landlord shall have no further
obligation or liability whatsoever to Tenant for further disbursement of any
portion of the Tenant Fund to Tenant. It is expressly understood and agreed that
Tenant shall complete, at its sole cost and expense, the Initial Alterations,
whether or not the Tenant Fund is sufficient to fund such completion. Any costs
to complete the Initial Alterations in excess of the Tenant Fund shall be the
sole responsibility and obligation of Tenant.
(E) Within thirty (30) days after completion of the Initial
Alterations, Tenant shall deliver to Landlord general releases and waivers of
lien from all contractors, subcontractors and materialmen involved in the
performance of the Initial Alterations and the materials furnished in connection
therewith (unless same previously were furnished pursuant to Section 3.4(C)
hereof), and a certificate from Tenant's independent licensed architect
certifying that (i) in his opinion the Initial Alterations have been performed
in a good and workerlike manner and completed in accordance with the final
detailed plans and specifications for such Initial Alterations as approved by
Landlord and (ii) all contractors, subcontractors and materialmen have been paid
for the Initial Alterations and materials furnished through such date.
(F) Tenant warrants and covenants that it shall incur costs and
expenses in excess of One Hundred Thirty-Six Thousand Eight Hundred Thirty-Six
Dollars ($136,836.00) toward the "hard" cost of the Initial Alterations.
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ARTICLE 4
REPAIRS-FLOOR LOAD
------------------
Section 4.1. Landlord shall operate, maintain and make all necessary
repairs (both structural and nonstructural) to the part of Building Systems
which provide service to the Premises (but not to the distribution portions of
such Building Systems located within the Premises) and the public portions of
the Building, both exterior and interior, in conformance with standards
applicable to non-institutional first class office buildings in Manhattan.
Tenant, at Tenant's sole cost and expense, shall take good care of the Premises
and the fixtures, equipment and appurtenances therein and the distribution
systems and shall make all nonstructural repairs thereto as and when needed to
preserve them in good working order and condition, except for reasonable wear
and tear, obsolescence and damage for which Tenant is not responsible pursuant
to the provisions of Article 10 hereof. Notwithstanding the foregoing, all
damage or injury to the Premises or to any other part of the Building and
Building Systems, or to its fixtures, equipment and appurtenances, whether
requiring structural or nonstructural repairs, caused by or resulting from
carelessness, omission, neglect or improper conduct of, or Alterations made by,
Tenant, Tenant's agents, employees, invitees or licensees, shall be repaired at
Tenant's sole cost and expense, by Tenant to the reasonable satisfaction of
Landlord (if the required repairs are nonstructural in nature and do not affect
any Building System), or by Landlord (if the required repairs are structural in
nature or affect any Building System). All of the aforesaid repairs shall be of
first quality and of a class consistent with non-institutional first class
office building work or construction and shall be made in accordance with the
provisions of Article 3 hereof. If Tenant fails after ten (10) days' notice (or
such shorter period as Landlord may be permitted pursuant to any Superior Lease
or Mortgage or such shorter period as may be required due to an emergency) to
proceed with due diligence to make or commence making repairs required to be
made by Tenant, the same may be made by Landlord at the expense of Tenant, and
the expenses thereof incurred by Landlord, with interest thereon at the
Applicable Rate, shall be forthwith paid to Landlord as additional rent within
fifteen (15) Business Days after rendition of a bill or statement therefor.
Tenant shall give Landlord prompt notice of any defective condition in the
Building or in any Building System, located in, servicing or passing through the
Premises.
Section 4.2. Tenant shall not place a load upon any floor of the Premises
exceeding fifty (50) pounds per square foot "live load". Tenant shall not move
any safe, heavy machinery, heavy equipment, business machines, freight, bulky
matter or fixtures into or out of the Building without Landlord's prior consent,
which consent shall not be unreasonably withheld, and shall make payment to
Landlord of Landlord's actual out-of-pocket costs in connection therewith. If
such safe, machinery, equipment, freight, bulky matter or fixtures requires
special handling, Tenant shall employ only persons holding a Master Rigger's
license to do said work. All work in connection therewith shall comply with all
Requirements and the Rules and Regulations, and shall be done during such hours
as Landlord may reasonably designate. Business machines and mechanical equipment
shall be placed and maintained by Tenant at Tenant's expense in settings
sufficient in Landlord's reasonable judgment to absorb and prevent vibration,
noise and annoyance. Except as
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expressly provided in this Lease, there shall be no allowance to Tenant for a
diminution of rental value and no liability on the part of Landlord by reason of
inconvenience, annoyance or injury to business arising from Landlord, Tenant or
others making, or failing to make, any repairs, alterations, additions or
improvements in or to any portion of the Building or the Premises, or in or to
fixtures, appurtenances or equipment thereof.
Section 4.3. Landlord shall use its reasonable efforts to minimize
interference with Tenant's use and occupancy of the Premises in making any
repairs, alterations, additions or improvements; provided, however, that
Landlord shall have no obligation to employ contractors or labor at so-called
overtime or other premium pay rates or to incur any other overtime costs or
expenses whatsoever, except that Landlord, at its expense but subject to
recoupment pursuant to Article 27 hereof, shall employ contractors or labor at
so-called overtime or other premium pay rates if necessary to make any repair
required to be made by it hereunder to remedy any condition that either (i)
results in a denial of access to the Premises, (ii) threatens the health or
safety of any occupant of the Premises, or (iii) except in the case of a fire or
other casualty, materially interferes with Tenant's ability to conduct its
business in the Premises. In all other cases, at Tenant's request, Landlord
shall employ contractors or labor at so-called overtime or other premium pay
rates and incur any other overtime costs or expenses in making any repairs,
alterations, additions or improvements, and Tenant shall pay to Landlord, as
additional rent, within fifteen (15) Business Days after demand, an amount equal
to the difference between the overtime or other premium pay rates and the
regular pay rates for such labor and any other overtime costs or expenses so
incurred.
ARTICLE 5
WINDOW CLEANING
---------------
Tenant shall not clean, nor require, permit, suffer or allow any window in
the Premises to be cleaned from the outside in violation of Section 202 of the
Labor Law, or any other Requirement, or of the rules of the Board of Standards
and Appeals, or of any other board or body having or asserting jurisdiction.
ARTICLE 6
REQUIREMENTS OF LAW
-------------------
Section 6.1. (A) Tenant, at its sole cost and expense, shall comply with
all Requirements applicable to the use and occupancy of the Premises, including,
without limitation, those applicable to the making of any Alterations therein or
the result of the making thereof and those applicable by reason of the nature or
type of business operated by Tenant in the Premises except that (other than with
respect to the making of Alterations or the result of the making thereof) Tenant
shall not be under any obligation to make any Alteration in order to comply with
any Requirement applicable to the mere general "office" use (as opposed to the
manner of use) of the Premises, unless otherwise expressly required herein.
Tenant shall knowingly not do or permit to
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be done any act or thing upon the Premises which will invalidate or be in
conflict with a standard "all-risk" insurance policy; and shall not do, or
permit anything to be done in or upon the Premises, or bring or keep anything
therein, except as now or hereafter permitted by the New York City Fire
Department, New York Board of Fire Underwriters, the Insurance Services Office
or other authority having jurisdiction and then only in such quantity and manner
of storage as not to increase the rate for fire insurance applicable to the
Building, or use the Premises in a manner (as opposed to mere use as general
"offices") which shall increase the rate of fire insurance on the Building or
on property located therein, over that in similar type buildings or in effect on
the Commencement Date. If by reason of Tenant's failure to comply with the
provisions of this Article, the fire insurance rate shall be higher than it
otherwise would be, then Tenant shall desist from doing or permitting to be done
any such act or thing and shall reimburse Landlord, as additional rent
hereunder, for that part of all fire insurance premiums thereafter paid by
Landlord which shall have been charged because of such failure by Tenant, and
shall make such reimbursement within fifteen (15) Business Days after demand by
Landlord. In any action or proceeding wherein Landlord and Tenant are parties, a
schedule or "make up" of rates for the Building or the Premises issued by the
Insurance Services Office, or other body fixing such fire insurance rates, shall
be conclusive evidence of the facts therein stated and of the several items and
charges in the fire insurance rates then applicable to the Building.
(B) Landlord, at its sole cost and expense (but subject to recoupment
as provided in Article 27 hereof), shall comply with all Requirements applicable
to the Premises and the Building which affect Tenant's use or occupancy of the
Premises other than those Requirements with respect to which Tenant or other
tenants or occupants of the Building shall be required to comply, subject to
Landlord's right to contest the applicability or legality thereof.
Section 6.2. Tenant, at its sole cost and expense and after notice to
Landlord, may contest by appropriate proceedings prosecuted diligently and in
good faith, the legality or applicability of any Requirement affecting the
Premises, provided that (a) Landlord (or any Indemnitee) shall not be subject to
imprisonment or to prosecution for a crime, nor shall the Real Property or any
part thereof be subject to being condemned or vacated, nor shall the certificate
of occupancy for the Premises or the Building be suspended or threatened to be
suspended by reason of non-compliance or by reason of such contest; (b) before
the commencement of such contest, if Landlord or any Indemnitee may be subject
to any civil fines or penalties or other criminal penalties or if Landlord may
be liable to any independent third party as a result of such noncompliance,
Tenant shall furnish to Landlord either (i) a bond of a surety company
satisfactory to Landlord, in form and substance reasonably satisfactory to
Landlord, and in an amount equal to one hundred twenty percent (120%) of the sum
of (A) the cost of such compliance, (B) the criminal or civil penalties or fines
that may accrue by reason of such non-compliance (as reasonably estimated by
Landlord), and (C) the amount of such liability to independent third parties (as
reasonably estimated by Landlord), and shall indemnify Landlord (and any
Indemnitee) against the cost of such compliance and liability resulting from or
incurred in connection with such contest or non-compliance (except that Tenant
shall not be required to furnish such bond to Landlord if it has otherwise
furnished any similar bond required by law to the appropriate Governmental
Authority and has named Landlord as a beneficiary
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thereunder) or (ii) other security reasonably satisfactory in all respects to
Landlord; (c) such non-compliance or contest shall not constitute or result in a
violation (either with the giving of notice or the passage of time or both) of
the terms of any Mortgage or Superior Lease, or if such Superior Lease or
Mortgage shall condition such non-compliance or contest upon the taking of
action or furnishing of security by Landlord, such action shall be taken or such
security shall be furnished at the expense of Tenant; and (d) Tenant shall keep
Landlord regularly advised as to the status of such proceedings. Without
limiting the applicability of the foregoing, Landlord (or any Indemnitee) shall
be deemed subject to prosecution for a crime if Landlord (or any Indemnitee), a
Lessor, a Mortgagee or any of their officers, directors, partners, shareholders,
agents or employees is charged with a crime of any kind whatsoever, unless such
charges are withdrawn ten (10) days before Landlord (or any Indemnitee), such
Lessor or such Mortgagee or such officer, director, partner, shareholder, agent
or employee, as the case may be, is required to plead or answer thereto.
ARTICLE 7
SUBORDINATION
-------------
Section 7.1. This Lease shall be subject and subordinate to each and every
Superior Lease and to each and every Mortgage. This clause shall be self-
operative and no further instrument of subordination shall be required from
Tenant to make the interest of any Lessor or Mortgagee superior to the interest
of Tenant hereunder; however, Tenant shall execute and deliver promptly any
instrument, in recordable form, that Landlord, any Mortgagee or Lessor may
request to evidence and confirm such subordination. If the date of expiration of
any Superior Lease shall be the same day as the Expiration Date, the Term shall
end and expire twelve (12) hours prior to the expiration of the Superior Lease.
Tenant shall not omit to do anything that Tenant is obligated to do under the
terms of this Lease so as to cause Landlord to be in default under any Superior
Lease or Mortgage. If, in connection with the financing of the Real Property,
the Building or the interest of the lessee under any Superior Lease, or if in
connection with the entering into of a Superior Lease, any lending institution
or Lessor shall request reasonable modifications of this Lease that do not
increase Tenant's monetary obligations under this Lease, or materially adversely
affect or diminish the rights, or materially increase the other obligations of
Tenant under this Lease, Tenant shall make such modifications.
Section 7.2. If at any time prior to the expiration of the Term, any
Superior Lease shall terminate or be terminated for any reason or any Mortgagee
comes into possession of the Real Property or the Building or the estate created
by any Superior Lease by receiver or otherwise, Tenant agrees, at the election
and upon demand of any owner of the Real Property or the Building, or of the
Lessor, or of any Mortgagee in possession of the Real Property or the Building,
to attorn, from time to time, to any such owner, Lessor or Mortgagee or any
person acquiring the interest of Landlord as a result of any such termination,
or as a result of a foreclosure of the Mortgage or the granting of a deed in
lieu of foreclosure, upon the then executory terms and conditions of this Lease,
subject to the provisions of Section 7.1 hereof and this Section 7.2, for the
remainder of the Term, provided that such owner, Lessor or Mortgagee, or
receiver caused to be appointed by any of the foregoing,
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as the case may be, shall then be entitled to possession of the Premises and
provided further that such owner, Lessor or Mortgagee, as the case may be, or
anyone claiming by, through or under such owner, Lessor or Mortgagee, as the
case may be, including a purchaser at a foreclosure sale, shall not be:
(1) liable for any act or omission of any prior landlord (including,
without limitation, the then defaulting landlord), or
(2) subject to any defense or offsets which Tenant may have against
any prior landlord (including, without limitation, the then defaulting
landlord), or
(3) bound by any payment of Rental which Tenant may have made to any
prior landlord (including, without limitation, the then defaulting landlord)
more than thirty (30) days in advance of the date upon which such payment was
due, or
(4) bound by any obligation to make any payment to or on behalf of
Tenant, including, without limitation, payments on account of any Tenant Fund,
or
(5) bound by any obligation to perform any work or to make
improvements to the Premises, except for (i) repairs and maintenance pursuant to
the provisions of Article 4, the need for which repairs and maintenance first
arises after the date upon which such owner, Lessor, or Mortgagee shall be
entitled to possession of the Premises, (ii) repairs to the Premises or any part
thereof as a result of damage by fire or other casualty pursuant to Article 10
hereof, but only to the extent that such repairs can be reasonably made from the
net proceeds of any insurance actually made available to such owner, Lessor or
Mortgagee, and (iii) repairs to the Premises as a result of a partial
condemnation pursuant to Article 11 hereof, but only to the extent that such
repairs can be reasonably made from the net proceeds of any award made available
to such owner, Lessor or Mortgagee, or
(6) bound by any amendment or modification of this Lease made without
its consent, or
(7) bound to return Tenant's security deposit, if any, until such
deposit has come into its actual possession and Tenant would be entitled to such
security deposit pursuant to the terms of this Lease.
The provisions of this Section 7.2 shall enure to the benefit of any such owner,
Lessor or Mortgagee, shall apply notwithstanding that, as a matter of law, this
Lease may terminate upon the termination of any Superior Lease, shall be self-
operative upon any such demand, and no further instrument shall be required to
give effect to said provisions. Tenant, however, upon demand of any such owner,
Lessor or Mortgagee, shall execute, at Tenant's expense, from time to time,
instruments, in recordable form, in confirmation of the foregoing provisions of
this Section 7.2, reasonably satisfactory to any such owner, Lessor or
Mortgagee, acknowledging such attornment and setting
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forth the terms and conditions of its tenancy. Nothing contained in this Section
7.2 shall be construed to impair any right otherwise exercisable by any such
owner, Lessor or Mortgagee. Notwithstanding the provisions of this Section 7.2,
this Lease shall not terminate by reason of the termination of any Superior
Lease without the prior written consent of the Mortgagee of the Mortgage which
is a first mortgage on Landlord's interest in the Real Property or the leasehold
estate created by such Superior Lease.
Section 7.3. From time to time, within seven (7) days next following
request by Landlord, any Mortgagee or any Lessor, Tenant shall deliver to
Landlord, such Mortgagee or such Lessor a written statement executed by Tenant,
in form reasonably satisfactory to Landlord, such Mortgagee or such Lessor, (1)
stating that this Lease is then in full force and effect and has not been
modified (or if modified, setting forth all modifications), (2) setting forth
the date to which the Fixed Rent, Escalation Rent and other items of Rental have
been paid, (3) stating whether or not, to the best knowledge of Tenant, Landlord
is in default under this Lease, and, if Landlord is in default, setting forth
the specific nature of all such defaults, and (4) as to any other matters
reasonably requested by Landlord, such Mortgagee or such Lessor. Tenant
acknowledges that any statement delivered pursuant to this Section 7.3 may be
relied upon by any purchaser or owner of the Real Property or the Building, or
Landlord's interest in the Real Property or the Building or any Superior Lease,
or by any Mortgagee, or by an assignee of any Mortgagee, or by any Lessor.
Section 7.4. From time to time, within seven (7) days next following
request by Tenant but not more frequently than twice in any twelve (12) month
period, Landlord shall deliver to Tenant a written statement executed by
Landlord (i) stating that this Lease is then in full force and effect and has
not been modified (or if modified, setting forth all modifications), (ii)
setting forth the date to which the Fixed Rent, Escalation Rent and any other
items of Rental have been paid, (iii) stating whether or not, to the best
knowledge of Landlord (but without having made any investigation), Tenant is in
default under this Lease, and, if Tenant is in default, setting forth the
specific nature of all such defaults, and (iv) as to any other matters
reasonably requested by Tenant and related to this Lease.
Section 7.5. As long as any Superior Lease or Mortgage shall exist, Tenant
shall not seek to terminate this Lease by reason of any act or omission of
Landlord until Tenant shall have given written notice of such act or omission to
all Lessors and Mortgagees at such addresses as shall have been furnished to
Tenant by such Lessors and Mortgagees and, if any such Lessor or Mortgagee, as
the case may be, shall have notified Tenant within ten (10) Business Days
following receipt of such notice of its intention to remedy such act or
omission, until a reasonable period of time shall have elapsed following the
giving of such notice, during which period such Lessors and Mortgagees shall
have the right, but not the obligation, to remedy such act or omission.
Section 7.6. Tenant hereby irrevocably waives any and all right(s) it may
have in connection with any zoning lot merger or transfer of development rights
with respect to the Real Property including, without limitation, any rights it
may have to be a party to, to contest, or to execute, any Declaration of
Restrictions (as such term is used in Section 12-10 of the Zoning Resolution of
The
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City of New York effective December 15, 1961, as amended) with respect to the
Real Property, which would cause the Premises to be merged with or unmerged from
any other zoning lot pursuant to such Zoning Resolution or to any document of a
similar nature and purpose, and Tenant agrees that this Lease shall be subject
and subordinate to any Declaration of Restrictions or any other document of
similar nature and purpose now or hereafter affecting the Real Property. In
confirmation of such subordination and waiver, Tenant shall execute and deliver
promptly any certificate or instrument that Landlord reasonably may request.
ARTICLE 8
RULES AND REGULATIONS
---------------------
Tenant and Tenant's contractors, employees, agents, visitors, invitees and
licensees shall comply with the Rules and Regulations. Tenant shall have the
right to dispute the reasonableness of any additional Rule or Regulation
hereafter adopted by Landlord. If Tenant disputes the reasonableness of any
additional Rule or Regulation hereafter adopted by Landlord, the dispute shall
be determined by arbitration in the City of New York in accordance with the
rules and regulations then obtaining of the American Arbitration Association or
its successor. Any such determination shall be final and conclusive upon the
parties hereto. The right to dispute the reasonableness of any additional Rule
or Regulation upon Tenant's part shall be deemed waived unless the same shall be
asserted by service of a notice upon Landlord within thirty (30) days after
receipt by Tenant of notice of the adoption of any such additional Rule or
Regulation. Nothing in this Lease contained shall be construed to impose upon
Landlord any duty or obligation to enforce the Rules and Regulations or terms,
covenants or conditions in any other lease against any other tenant, and
Landlord shall not be liable to Tenant for violation of the same by any other
tenant, its employees, agents, visitors or licensees.
ARTICLE 9
INSURANCE, PROPERTY LOSS OR DAMAGE; REIMBURSEMENT
-------------------------------------------------
Section 9.1. (A) Any Building employee to whom any property shall be
entrusted by or on behalf of Tenant shall be deemed to be acting as Tenant's
agent with respect to such property and neither Landlord nor its agents shall be
liable for any damage to property of Tenant or of others entrusted to employees
of the Building, nor for the loss of or damage to any property of Tenant by
theft or otherwise. Neither Landlord nor its agents shall be liable for any
injury (or death) to persons or damage to property, or interruption of Tenant's
business, resulting from fire or other casualty; nor shall Landlord or its
agents be liable for any such injury (or death) to persons or damage caused by
other tenants or persons in the Building or caused by construction of any
private, public or quasi-public work; nor shall Landlord be liable for any
injury (or death) to persons or damage to property or improvements, or
interruption of Tenant's business, resulting from any latent defect in the
Premises or in the Building (provided that the foregoing shall not relieve
Landlord from its obligations, if any, to repair such latent defect pursuant to
the provisions of Article 4 hereof or affect
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Tenant's right, if any, regarding an abatement of the Fixed Rent and Escalation
Rent as set forth in Section 14.2 hereof). Anything in this Article 9 to the
contrary notwithstanding, except as set forth in Articles 4, 10, 13, 28, and 35
of this Lease and otherwise as expressly provided herein, Landlord shall not be
relieved from responsibility directly to Tenant for any loss or damage caused
directly to Tenant wholly or in part by the negligent acts or omissions of
Landlord. Nothing in the foregoing sentence shall affect any right of Landlord
to the indemnity from Tenant to which Landlord may be entitled under Article 35
hereof in order to recoup for payments made to compensate for losses of third
parties.
(B) If at any time any windows of the Premises are temporarily closed,
darkened or bricked-up due to any Requirement or by reason of repairs,
maintenance, alterations, or improvements to the Building, or any of such
windows are permanently closed, darkened or bricked-up due to any Requirement,
Landlord shall not be liable for any damage Tenant may sustain thereby and
Tenant shall not be entitled to any compensation therefor, nor abatement or
diminution of Fixed Rent or any other item of Rental, nor shall the same release
Tenant from its obligations hereunder, nor constitute an actual or constructive
eviction, in whole or in part, by reason of inconvenience or annoyance to
Tenant, or injury to or interruption of Tenant's business, or otherwise, nor
impose any liability upon Landlord or its agents. If at any time the windows of
the Premises are temporarily closed, darkened or bricked-up, as aforesaid, then,
unless Tenant is required pursuant to the Lease to perform the repairs,
maintenance, alterations, or improvements, or to comply with the Requirements,
which resulted in such windows being closed, darkened or bricked-up, Landlord
shall perform such repairs, maintenance, alterations or improvements and comply
with the applicable Requirements with reasonable diligence and otherwise take
such action as may be reasonably necessary to minimize the period during which
such windows are temporarily closed, darkened, or bricked-up.
(C) Tenant shall immediately notify Landlord of any fire or accident
in the Premises.
Section 9.2. Tenant shall obtain and keep in full force and effect (i) an
"all risk" insurance policy for Tenant's Specialty Alterations and Tenant's
Property at the Premises in an amount equal to one hundred percent (100%) of the
replacement value thereof, and (ii) a policy of commercial general liability and
property damage insurance on an occurrence basis, with a broad form contractual
liability endorsement. Such policies shall provide that Tenant is named as the
insured. Landlord, Landlord's managing agent, Landlord's agents and any Lessors
and any Mortgagees (whose names shall have been furnished to Tenant) shall be
added as additional insureds, as their respective interests may appear, with
respect to the insurance required to be carried pursuant to clauses (i) and (ii)
above. Such policy with respect to clause (ii) above shall include a provision
under which the insurer agrees to indemnify, defend and hold Landlord,
Landlord's managing agent, Landlord's agents and such Lessors and Mortgagees
harmless from and against, subject to the limits of liability set forth in this
Section 9.2, all cost, expense and liability arising out of, or based upon, any
and all claims, accidents, injuries and damages mentioned in Article 35. In
addition, the policy required to be carried pursuant to clause (ii) above shall
contain a provision that (a) no act or
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omission of Tenant shall affect or limit the obligation of the insurer to pay
the amount of any loss sustained and (b) the policy shall be non-cancellable
with respect to Landlord, Landlord's managing agent, Landlord's agents and such
Lessors and Mortgagees (whose names and addresses shall have been furnished to
Tenant) unless thirty (30) days' prior written notice shall have been given to
Landlord by certified mail, return receipt requested, which notice shall contain
the policy number and the names of the insured and additional insureds. In
addition, upon receipt by Tenant of any notice of cancellation or any other
notice from the insurance carrier which may adversely affect the coverage of the
insureds under such policy of insurance, Tenant shall immediately deliver to
Landlord and any other additional insured hereunder a copy of such notice. The
minimum amounts of liability under the policy of insurance required to be
carried pursuant to clause (ii) above shall be a combined single limit with
respect to each occurrence in an amount of $5,000,000 for injury (or death) to
persons and damage to property, which amount shall be increased from time to
time to that amount of insurance which in Landlord's reasonable judgment is then
being customarily required by prudent landlords of non-institutional first class
buildings in New York City. The insurance described in clause (i) above may be
effected by a policy or policies of blanket insurance which cover property
located in other premises in addition to the Premises, but only if (a) the
protection afforded thereunder is not less than that which would have been
afforded under a separate policy or policies relating only to Tenant's Specialty
Alterations and Tenant's Property in the Premises, and (b) in all other respects
any such policy shall comply with the other provisions of this Article 9. Any
blanket policy shall include a provision that the aggregate limit shall apply
separately to Tenant's Specialty Alterations and Tenant's Property in the
Premises and that the insurer will provide notice to Landlord if the aggregate
limit is reduced by either payment of a claim or the establishment of a reserve
for claims, if such payments or reserves exceed $250,000.00. Tenant agrees that,
in the event that the aggregate limit applying to the Premises is reduced by the
payment of a claim or establishment of a reserve in excess of $250,000.00,
Tenant shall take all practical and immediate steps to have the aggregate limit
restored by endorsement to the existing policy or the purchase of additional
insurance policies with a single limit of not less than $5,000,000.00. All
insurance required to be carried by Tenant pursuant to the terms of this Lease
shall be effected under valid and enforceable policies issued by reputable and
independent insurers permitted to do business in the State of New York, and
rated in Best's Insurance Guide, or any successor thereto (or if there be none,
an organization having a national reputation) as having a general policyholder
rating of "A" and a financial rating of at least "XIII".
Section 9.3. On or prior to the Commencement Date, Tenant shall deliver to
Landlord appropriate certificates of insurance, including evidence of waivers of
subrogation required pursuant to Section 10.5 hereof, required to be carried by
Tenant pursuant to this Article 9. Evidence of each renewal or replacement of a
policy shall be delivered by Tenant to Landlord at least twenty (20) days prior
to the expiration of such policy.
Section 9.4. Tenant acknowledges that Landlord shall not carry insurance
on, and shall not be responsible for damage to, Tenant's Property or Specialty
Alterations, and that Landlord shall not carry insurance against, or be
responsible for any loss suffered by Tenant due to, interruption of Tenant's
business (it being expressly understood and agreed that the foregoing shall not
affect
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Tenant's right, if any, regarding an abatement of the Fixed Rent and Escalation
Rent pursuant to Section 14.2 hereof);
Section 9.5. If notwithstanding the recovery of insurance proceeds by
Tenant for loss, damage or destruction of its property (or rental value or
business interruptions) Landlord is liable to Tenant with respect thereto or is
obligated under this Lease to make replacement, repair or restoration, then, at
Landlord's option, either (i) the amount of the net proceeds of Tenant's
insurance against such loss, damage or destruction shall be offset against
Landlord's liability to Tenant therefor, or (ii) shall be made available to
Landlord to pay for replacement, repair or restoration.
ARTICLE 10
DESTRUCTION-FIRE OR OTHER CAUSE
-------------------------------
Section 10.1. (A) If the Premises (including Alterations other than
Specialty Alterations) shall be damaged by fire or other casualty, and if Tenant
shall give prompt notice thereof to Landlord, the damage, with such
modifications as shall be required in order to comply with Requirements shall be
diligently repaired by and at the expense of Landlord to substantially the
condition prior to the damage, and until such repairs which are required to be
performed by Landlord (excluding Long Lead Work) shall be substantially
completed (of which substantial completion Landlord shall promptly notify
Tenant) the Fixed Rent, Escalation Rent and Space Factor shall be reduced in the
proportion which the area of the part of the Premises which is not usable by
Tenant, as determined by Landlord in its reasonable discretion, bears to the
total area of the Premises immediately prior to such casualty. Upon the
substantial completion of such repairs (excluding Long Lead Work), Landlord
shall diligently prosecute to completion any items of Long Lead Work remaining
to be completed. Landlord shall have no obligation to repair any damage to, or
to replace, any Specialty Alterations or Tenant's Property, which Tenant shall
complete promptly after substantial completion of Landlord's repair obligations
under this Article 10. In addition, Landlord shall not be obligated to repair
any damage to, or to replace, any Alterations unless Tenant shall have notified
Landlord of the completion of such Alterations and the cost thereof, and shall
have maintained adequate records with respect to such Alterations. Tenant shall
make all necessary repairs to the Specialty Alterations and same shall be
completed promptly after substantial completion of Landlord's repair obligations
under this Article 10. Landlord shall use its reasonable efforts to minimize
interference with Tenant's use and occupancy in making any repairs pursuant to
this Section. Anything contained herein to the contrary notwithstanding, if the
Premises (including any Alterations) are damaged by fire or other casualty at
any time prior to the completion of the Initial Alterations, Landlord's
obligation to repair the Premises (and any Alterations) shall be limited to
repair of the part of the Building Systems serving the Premises on the
Commencement Date, but not the distribution portions of such Building Systems
located within the Premises, the floor and ceiling slabs of the Premises and the
exterior walls of the Premises, all to substantially the same condition which
existed on the Commencement Date, with such modifications as shall be required
in order to comply with Requirements.
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(B) Prior to the substantial completion of Landlord's repair
obligations set forth in Section 10.1 (A) hereof, Landlord shall provide Tenant
and Tenant's contractor, subcontractors and materialmen access to the Premises
to perform Specialty Alterations (or Alterations, if Landlord is not obligated
to repair same pursuant to the provisions hereof), on the following terms and
conditions (but not to occupy the same for the conduct of business):
(1) Tenant shall not commence work in any portion of the Premises
until the date specified in a notice from Landlord to Tenant stating that the
repairs required to be made by Landlord have been or will be completed to the
extent reasonably necessary, in Landlord's discretion, to permit the
commencement of the Specialty Alterations (or Alterations, if Landlord is not
obligated to repair same pursuant to the provisions hereof) then prudent to be
performed in accordance with good construction practice in the portion of the
Premises in question without interference with, and consistent with the
performance of, the repairs remaining to be performed.
(2) Such access by Tenant shall be deemed to be subject to all of
the applicable provisions of this Lease, including, without limitation, Tenant's
obligation to pay to Landlord an amount equal to the Electricity Inclusion
Factor, or, if applicable, the Electricity Additional Rent except that there
shall be no obligation on the part of Tenant solely because of such access to
pay any Fixed Rent or Escalation Rent with respect to the affected portion of
the Premises for any period prior to substantial completion of the repairs.
(3) It is expressly understood that if Landlord shall be delayed
from substantially completing the repairs due to any acts of Tenant, its agents,
servants, employees or contractors, including, without limitation, by reason of
the performance of any Specialty Alteration (or Alteration, if Landlord is not
obligated to repair same pursuant to the provisions hereof), by reason of
Tenant's failure or refusal to comply or to cause its architects, engineers,
designers and contractors to comply with any of Tenant's obligations described
or referred to in this Lease, or if such repairs are not completed because under
good construction scheduling practice such repairs should be performed after
completion of any Specialty Alteration (or Alteration, if Landlord is not
obligated to repair same pursuant to the provisions hereof), then such repairs
shall be deemed substantially complete on the date when the repairs would have
been substantially complete but for such delay and the expiration of the
abatement of the Tenant's obligations hereunder shall not be postponed by reason
of such delay. Any additional costs to Landlord to complete any repairs
occasioned by such delay shall be paid by Tenant to Landlord within fifteen (15)
Business Days after demand, as additional rent.
Section 10.2. Anything contained in Section 10.1 hereof to the contrary
notwithstanding, if the Building shall be so damaged by fire or other casualty
that, in Landlord's opinion, substantial alteration, demolition, or
reconstruction of the Building shall be required (whether or not the Premises
shall have been damaged or rendered untenantable), then Landlord, at Landlord's
option, may, not later than ninety (90) days following the damage, give Tenant a
notice in writing terminating this Lease, provided that if the Premises are not
substantially damaged or rendered substantially untenantable, Landlord may not
terminate this Lease unless it shall elect to terminate
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leases (including this Lease), affecting at least fifty percent (50%) of the
rentable area of the Building (excluding any rentable area occupied by Landlord
or its Affiliates). If Landlord elects to terminate this Lease, the Term shall
expire upon a date set by Landlord, but not sooner than the tenth (10th) day
after such notice is given, and Tenant shall vacate the Premises and surrender
the same to Landlord in accordance with the provisions of Article 20 hereof.
Upon the termination of this Lease under the conditions provided for in this
Section 10.2, the Fixed Rent and Escalation Rent shall be apportioned and any
prepaid portion of Fixed Rent and Escalation Rent for any period after such date
shall be refunded by Landlord to Tenant.
Section 10.3. (A) Within forty-five (45) days after notice to Landlord of
any damage described in Section 10.1 hereof, Landlord shall deliver to Tenant a
statement prepared by a reputable contractor setting forth such contractor's
estimate as to the time required to repair such damage, exclusive of time
required to repair any Specialty Alterations (which are Tenant's obligation to
repair) or to perform Long Lead Work. If the estimated time period exceeds
twelve (12) months from the date of such statement, Tenant may elect to
terminate this Lease by notice to Landlord not later than thirty (30) days
following receipt of such statement. If Tenant makes such election, the Term
shall expire upon the thirtieth (30th) day after notice of such election is
given by Tenant, and Tenant shall vacate the Premises and surrender the same to
Landlord in accordance with the provisions of Article 20 hereof. If Tenant shall
not have elected to terminate this Lease pursuant to this Article 10 (or is not
entitled to terminate this Lease pursuant to this Article 10), the damages shall
be diligently repaired by and at the expense of Landlord as set forth in Section
10.1 hereof.
(B) Notwithstanding the foregoing, if the Premises shall be
substantially damaged during the last year of the Term, Landlord or Tenant may
elect by notice, given within thirty (30) days after the occurrence of such
damage, to terminate this Lease and if either party makes such election, the
Term shall expire upon the thirtieth (30th) day after notice of such election is
given by either party to the other party, and Tenant shall vacate the Premises
and surrender the same to Landlord in accordance with the provisions of Article
20 hereof.
(C) Except as expressly set forth in this Section 10.3, Tenant shall
have no other options to cancel this Lease under this Article 10.
Section 10.4. This Article 10 constitutes an express agreement governing
any case of damage or destruction of the Premises or the Building by fire or
other casualty, and Section 227 of the Real Property Law of the State of New
York, which provides for such contingency in the absence of an express
agreement, and any other law of like nature and purpose now or hereafter in
force shall have no application in any such case.
Section 10.5. The parties hereto shall procure an appropriate clause in, or
endorsement on, any fire or extended coverage insurance covering the Premises,
the Building and personal property, fixtures and equipment located thereon or
therein, pursuant to which the insurance companies waive subrogation or consent
to a waiver of right of recovery and having obtained such clauses or
endorsements of waiver of subrogation or consent to a waiver of right of
recovery, will not make any
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claim against or seek to recover from the other for any loss or damage to its
property or the property of others resulting from fire or other hazards covered
by such fire and extended coverage insurance, provided, however, that the
release, discharge, exoneration and covenant not to sue herein contained shall
be limited by and be coextensive with the terms and provisions of the waiver of
subrogation clause or endorsements or clauses or endorsements consenting to a
waiver of right of recovery. If the payment of an additional premium is required
for the inclusion of such waiver of subrogation provision, each party shall
advise the other of the amount of any such additional premiums and the other
party at its own election may, but shall not be obligated to, pay the same. If
such other party shall not elect to pay such additional premium, the first party
shall not be required to obtain such waiver of subrogation provision. If either
party shall be unable to obtain the inclusion of such clause even with the
payment of an additional premium, then such party shall attempt to name the
other party as an additional insured (but not a loss payee) under the policy. If
the payment of an additional premium is required for naming the other party as
an additional insured (but not a loss payee), each party shall advise the other
of the amount of any such additional premium and the other party at its own
election may, but shall not be obligated to, pay the same. If such other party
shall not elect to pay such additional premium or if it shall not be possible to
have the other party named as an additional insured (but not loss payee), even
with the payment of an additional premium, then (in either event) such party
shall so notify the first party and the first party shall not have the
obligation to name the other party as an additional insured. Tenant acknowledges
that Landlord shall not carry insurance on and shall not be responsible for
damage to, Tenant's Property or Specialty Alterations or any other Alteration
prior to the completion of the Initial Alterations, and that Landlord shall not
carry insurance against, or be responsible for any loss suffered by Tenant due
to, interruption of Tenant's business.
ARTICLE 11
EMINENT DOMAIN
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Section 11.1. If the whole of the Real Property, the Building or the
Premises shall be acquired or condemned for any public or quasi-public use or
purpose, this Lease and the Term shall end as of the date of the vesting of
title with the same effect as if said date were the Expiration Date. If only a
part of the Real Property and not the entire Premises shall be so acquired or
condemned then, (1) except as hereinafter provided in this Section 11.1, this
Lease and the Term shall continue in force and effect, but, if a part of the
Premises is included in the part of the Real Property so acquired or condemned,
from and after the date of the vesting of title, the Fixed Rent and the Space
Factor shall be reduced in the proportion which the area of the part of the
Premises so acquired or condemned bears to the total area of the Premises
immediately prior to such acquisition or condemnation and Tenant's Share and
Tenant's Tax Share shall each be redetermined based upon the proportion in which
the ratio between the rentable area of the Premises remaining after such
acquisition or condemnation bears to the rentable area of the Building remaining
after such acquisition or condemnation; (2) whether or not the Premises shall be
affected thereby, Landlord, at Landlord's option, may give to Tenant, within
sixty (60) days next following the date upon which Landlord shall have received
notice of vesting of title, a thirty (30) days' notice of termination of
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this Lease if Landlord shall elect to terminate leases (including this Lease),
affecting at least fifty percent (50%) of the rentable area of the Building
(excluding any rentable area leased by Landlord or its Affiliates); and (3) if
the part of the Real Property so acquired or condemned shall contain more than
fifteen percent (15%) of the total area of the Premises immediately prior to
such acquisition or condemnation, or if, by reason of such acquisition or
condemnation, Tenant no longer has reasonable means of access to the Premises,
Tenant, at Tenant's option, may give to Landlord, within sixty (60) days next
following the date upon which Tenant shall have received notice of vesting of
title, a thirty (30) days' notice of termination of this Lease. If any such
thirty (30) days' notice of termination is given by Landlord or Tenant, this
Lease and the Term shall come to an end and expire upon the expiration of said
thirty (30) days with the same effect as if the date of expiration of said
thirty (30) days were the Expiration Date. If a part of the Premises shall be so
acquired or condemned and this Lease and the Term shall not be terminated
pursuant to the foregoing provisions of this Section 11.1, Landlord, at
Landlord's expense, shall restore that part of the Premises not so acquired or
condemned to a self-contained rental unit inclusive of Tenant's Alterations
(other than Specialty Alterations), except that if such acquisition or
condemnation occurs prior to completion of the Initial Alterations, Landlord
shall only be required to restore that part of the Premises not so acquired or
condemned to a self-contained rental unit exclusive of Tenant's Alterations.
Upon the termination of this Lease and the Term pursuant to the provisions of
this Section 11.1, the Fixed Rent and Escalation Rent shall be apportioned and
any prepaid portion of Fixed Rent and Escalation Rent for any period after such
date shall be refunded by Landlord to Tenant.
Section 11.2. In the event of any such acquisition or condemnation of all
or any part of the Real Property, Landlord shall be entitled to receive the
entire award for any such acquisition or condemnation, Tenant shall have no
claim against Landlord or the condemning authority for the value of any
unexpired portion of the Term and Tenant hereby expressly assigns to Landlord
all of its right in and to any such award. Nothing contained in this Section
11.2 shall be deemed to prevent Tenant from making a separate claim in any
condemnation proceedings for the then value of any Tenant's Property included in
such taking, and for any moving expenses.
Section 11.3. If the whole or any part of the Premises shall be acquired or
condemned temporarily during the Term for any public or quasi-public use or
purpose, Tenant shall give prompt notice thereof to Landlord and the Term shall
not be reduced or affected in any way and Tenant shall continue to pay in full
all items of Rental payable by Tenant hereunder without reduction or abatement,
and Tenant shall be entitled to receive for itself any award or payments for
such use, provided, however, that:
(i) if the acquisition or condemnation is for a period not
extending beyond the Term and if such award or payment is made less
frequently than in monthly installments, the same shall be paid to and
held by Landlord as a fund which Landlord shall apply from time to
time to the Rental payable by Tenant hereunder, except that, if by
reason of such acquisition or condemnation changes or alterations are
required to be made to the Premises which would necessitate an
expenditure to
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restore the Premises, then a portion of such award or payment
considered by Landlord as appropriate to cover the expenses of the
restoration shall be retained by Landlord, without application as
aforesaid, and applied toward the restoration of the Premises as
provided in Section 11.1 hereof; or
(ii) if the acquisition or condemnation is for a period extending
beyond the Term, such award or payment shall be apportioned between
Landlord and Tenant as of the Expiration Date; Tenant's share thereof,
if paid less frequently than in monthly installments, shall be paid to
Landlord and applied in accordance with the provisions of clause (i)
above, provided, however, that the amount of any award or payment
allowed or retained for restoration of the Premises shall remain the
property of Landlord if this Lease shall expire prior to the
restoration of the Premises.
ARTICLE 12
ASSIGNMENT, SUBLETTING, MORTGAGE, ETC.
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Section 12.1. (A) Except as expressly permitted herein, Tenant, without the
prior consent of Landlord in each instance, shall not (a) assign its rights or
delegate its duties under this Lease (whether by operation of law, transfers of
interests in Tenant or otherwise), mortgage or encumber its interest in this
Lease, in whole or in part, (b) sublet, or permit the subletting of, the
Premises or any part thereof, or (c) permit the Premises or any part thereof to
be occupied or used for desk space, mailing privileges or otherwise, by any
Person other than Tenant.
(B) If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, any and all monies or other consideration
payable or otherwise to be delivered in connection with such assignment shall be
paid or delivered to Landlord, shall be and remain the exclusive property of
Landlord and shall not constitute property of Tenant or of the estate of Tenant
within the meaning of the Bankruptcy Code. Any and all monies or other
consideration constituting Landlord's property under the preceding sentence not
paid or delivered to Landlord shall be held in trust for the benefit of Landlord
and shall be promptly paid to or turned over to Landlord.
Section 12.2. (A) If Tenant's interest in this Lease is assigned in
violation of the provisions of this Article 12, such assignment shall be void
and of no force and effect against Landlord; provided, however, that Landlord
may collect an amount equal to the then Fixed Rent plus any other item of Rental
from the assignee as a fee for its use and occupancy, and shall apply the net
amount collected to the Fixed Rent and other items of Rental reserved in this
Lease. If the Premises or any part thereof are sublet to, or occupied by, or
used by, any Person other than Tenant, whether or not in violation of this
Article 12, Landlord, after default by Tenant under this Lease, including,
without limitation, a subletting or occupancy in violation of this Article 12,
may collect any item of Rental or other sums paid by the subtenant, user or
occupant as a fee for its use and occupancy, and shall apply the net amount
collected to the Fixed Rent and other items of Rental reserved in this Lease. No
such assignment, subletting, occupancy or use, whether with or without
Landlord's prior consent,
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nor any such collection or application of Rental or fee for use and occupancy,
shall be deemed a waiver by Landlord of any term, covenant or condition of this
Lease or the acceptance by Landlord of such assignee, subtenant, occupant or
user as tenant hereunder. The consent by Landlord to any assignment, subletting,
occupancy or use shall not relieve Tenant from its obligation to obtain the
express prior consent of Landlord to any further assignment, subletting,
occupancy or use.
(B) Tenant shall reimburse Landlord within fifteen (15) Business Days
after demand thereof for any actual out-of-pocket costs that may be incurred by
Landlord in connection with any proposed assignment of Tenant's interest in this
Lease or any proposed subletting of the Premises or any part thereof, including,
without limitation, any reasonable processing fee, reasonable attorneys' fees
and disbursements and the reasonable costs of making investigations as to the
acceptability of the proposed subtenant or the proposed assignee.
(C) Neither any assignment of Tenant's interest in this Lease nor any
subletting, occupancy or use of the Premises or any part thereof by any Person
other than Tenant, nor any collection of Rental by Landlord from any Person
other than Tenant as provided in this Section 12.2, nor any application of any
such Rental as provided in this Section 12.2 shall, in any circumstances,
relieve Tenant of its obligations under this Lease on Tenant's part to be
observed and performed.
(D) Any Person to which this Lease is assigned pursuant to the
provisions of the Bankruptcy Code shall be deemed without further act or deed to
have assumed all of the obligations arising under this Lease on and after the
date of such assignment. Any such assignee shall execute and deliver to Landlord
upon demand an instrument confirming such assumption. No assignment of this
Lease shall relieve Tenant of its obligations hereunder and, subsequent to any
assignment, Tenant's liability hereunder shall continue to the extent of the
obligations contained in this Lease (as the same may have been amended or
modified prior to any such assignment), notwithstanding any subsequent
modification or amendment hereof or the release of any subsequent tenant
hereunder from any liability, to which release Tenant hereby consents in
advance.
Section 12.3. (A) If Tenant assumes this Lease and proposes to assign the
same pursuant to the provisions of the Bankruptcy Code to any Person who shall
have made a bona fide offer to accept an assignment of this Lease on terms
acceptable to Tenant, then notice of such proposed assignment shall be given to
Landlord by Tenant no later than twenty (20) days after receipt by Tenant, but
in any event no later than ten (10) days prior to the date that Tenant shall
make application to a court of competent jurisdiction for authority and approval
to enter into such assignment and assumption. Such notice shall set forth (a)
the name and address of such Person, (b) all of the terms and conditions of such
offer, and (c) adequate assurance of future performance by such Person under the
Lease as set forth in Paragraph (B) below, including, without limitation, the
assurance referred to in Section 365(b)(3) of the Bankruptcy Code. Landlord
shall have the prior right and option, to be exercised by notice to Tenant given
at any time prior to the effective date of such proposed assignment, to accept
an assignment of this Lease upon the same terms and conditions and for the same
consideration, if any, as the bona fide offer made by such Person, less any
brokerage commissions which would otherwise be payable by Tenant out of the
consideration to be
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paid by such Person in connection with the assignment of this Lease.
(B) The term "adequate assurance of future performance" as used in
this Lease shall mean that any proposed assignee shall, among other things, (a)
deposit with Landlord on the assumption of this Lease the sum of the then Fixed
Rent as security for the faithful performance and observance by such assignee of
the terms and obligations of this Lease, which sum shall be held by Landlord in
accordance with the provisions of Article 31 hereof, (b) furnish Landlord with
financial statements of such assignee for the prior three (3) fiscal years, as
finally determined after an audit and certified as correct by a certified public
accountant, which financial statements shall show a net worth of at least six
(6) times the then Fixed Rent for each of such three (3) years, (c) grant to
Landlord a security interest in such property of the proposed assignee as
Landlord shall deem necessary to secure such assignee's future performance under
this Lease, and (d) provide such other information or take such action as
Landlord, in its reasonable judgment shall determine is necessary to provide
adequate assurance of the performance by such assignee of its obligations under
the Lease.
Section 12.4. (A) As long as Focal Communications Corp. is Tenant, Tenant
shall have the privilege, subject to the terms and conditions hereinafter set
forth, without the consent of Landlord but subject to Tenant's satisfaction of
conditions set forth in clauses (1), (4) and (5) of Section 12.8(A) hereof, and
without Landlord having the right granted in Section 12.8(B) hereof to
recapture, to assign its interest in this Lease (i) to any corporation which is
a successor to Tenant either by merger or consolidation, (ii) to a purchaser of
all or substantially all of Tenant's assets (provided such purchaser shall have
also assumed substantially all of Tenant's liabilities) or (iii) to a Person
which shall (1) Control, (2) be under the Control of, or (3) be under common
Control with Tenant (any such Person referred to in this clause (iii) being a
"Related Entity"). As long as Focal Communications Corp. is Tenant, Tenant also
shall have the privilege, subject to the terms and conditions hereinafter set
forth, without the consent of Landlord but subject to Tenant's satisfaction of
conditions set forth in clauses (3), (6) through (8) and (10) of Section 12.6(A)
and without Landlord having the right granted in Section 12.6(B) hereof to
recapture, to sublease all or any portion of the Premises to a Related Entity.
Any assignment or subletting described above may only be made upon the condition
that (a) any such assignee or subtenant shall continue to use the Premises for
the conduct of the same business as Tenant was conducting prior to such
assignment or sublease, (b) the principal purpose of such assignment or sublease
is not the acquisition of Tenant's interest in this Lease or to circumvent the
provisions of Section 12.1 of this Article (except if such assignment or
sublease is made to a Related Entity and is made for a valid intracorporate
business purpose and is not made to circumvent the provisions of Section 12.1 of
this Article), and (c) in the case of an assignment other than to a Related
Entity, any such assignee shall have a net worth and annual income and cash
flow, determined in accordance with generally accepted accounting principles,
consistently applied, after giving effect to such assignment, equal to the
greater of Tenant's net worth and annual income and cash flow, as so determined,
on (i) the date immediately preceding the date of such assignment, and (ii) the
Commencement Date. Tenant shall, within ten (10) Business Days after execution
thereof, deliver to Landlord either (x) a duplicate original instrument of
assignment in form and substance reasonably satisfactory to Landlord, duly
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executed by Tenant, together with an instrument in form and substance reasonably
satisfactory to Landlord, duly executed by the assignee, in which such assignee
shall assume observance and performance of, and agree to be personally bound by,
all of the terms, covenants and conditions of this Lease on Tenant's part to be
observed and performed from and after the effective date of the assignment, or
(y) a duplicate original sublease in form and substance reasonably satisfactory
to Landlord, duly executed by Tenant and the subtenant.
(B) If Tenant is a partnership, the admission of new Partners, the
withdrawal, retirement, death, incompetency or bankruptcy of any Partner, or the
reallocation of partnership interests among the Partners shall not constitute an
assignment of this Lease, provided the principal purpose of any of the foregoing
is not to circumvent the restrictions on assignment set forth in the provisions
of this Article 12. The reorganization of Tenant from a professional corporation
into a partnership or the reorganization of a Tenant from a partnership into a
professional corporation, shall not constitute an assignment of this Lease,
provided that immediately following such reorganization the Partners of Tenant
shall be the same as the shareholders of Tenant existing immediately prior to
such reorganization, or the shareholders of Tenant shall be the same as the
Partners of Tenant existing immediately prior to such reorganization, as the
case may be. If Tenant shall become a professional corporation, each individual
shareholder in Tenant and each employee of a professional corporation which is a
shareholder in Tenant shall have the same personal liability as such individual
or employee would have under this Lease if Tenant were a partnership and such
individual or employee were a Partner in Tenant. If any individual Partner in
Tenant is or becomes an employee of a professional corporation, such individual
shall have the same personal liability under this Lease as such individual would
have if he and not the professional corporation were a Partner of Tenant.
(C) Except as set forth above, either a transfer (including the
issuance of treasury stock or the creation and issuance of new stock or a new
class of stock) of a controlling interest in the shares of Tenant or of any
entity which holds an interest in Tenant through one or more intermediaries (if
Tenant or such entity is a corporation or trust) or a transfer of a majority of
the total interest in Tenant or of any entity which holds an interest in Tenant
through one or more intermediaries (if Tenant or such entity is a partnership or
other entity) at any one time or over a period of time through a series of
transfers, shall be deemed an assignment of this Lease and shall be subject to
all of the provisions of this Article 12, including, without limitation, the
requirement that Tenant obtain Landlord's prior consent thereto. A public
offering of shares of Tenant's stock or other form of economic ownership of
Tenant shall not constitute an assignment of this Lease. The transfer of shares
of Tenant or of any entity which holds an interest in Tenant through one or more
intermediaries (if Tenant or such entity is a corporation or trust) for purposes
of this Section 12.4 shall not include the sale of shares by persons other than
those deemed "insiders" within the meaning of the Securities Exchange Act of
1934, as amended, which sale is effected through the "over-the-counter market"
or through any recognized stock exchange.
Section 12.5. If, at any time after the originally named Tenant herein
may have assigned Tenant's interest in this Lease, this Lease shall be
disaffirmed or rejected in any proceeding of the types described in paragraph
(E) of Section 16.1 hereof, or in any similar proceeding, or in the event
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of termination of this Lease by reason of any such proceeding or by reason of
lapse of time following notice of termination given pursuant to said Article 16
based upon any of the Events of Default set forth in such paragraph, any prior
Tenant, including, without limitation, the originally named Tenant, upon request
of Landlord given within thirty (30) days next following any such disaffirmance,
rejection or termination (and actual notice thereof to Landlord in the event of
a disaffirmance or rejection or in the event of termination other than by act of
Landlord), shall (1) pay to Landlord all Fixed Rent, Escalation Rent and other
items of Rental due and owing by the assignee to Landlord under this Lease to
and including the date of such disaffirmance, rejection or termination, and (2)
as "tenant", enter into a new lease with Landlord of the Premises for a term
commencing on the effective date of such disaffirmance, rejection or termination
and ending on the Expiration Date, unless sooner terminated as in such lease
provided, at the same Fixed Rent and upon the then executory terms, covenants
and conditions as are contained in this Lease, except that (a) Tenant's rights
under the new lease shall be subject to the possessory rights of the assignee
under this Lease and the possessory rights of any person claiming through or
under such assignee or by virtue of any statute or of any order of any court,
(b) such new lease shall require all defaults existing under this Lease to be
cured by Tenant with due diligence, and (c) such new lease shall require Tenant
to pay all Escalation Rent reserved in this Lease which, had this Lease not been
so disaffirmed, rejected or terminated, would have accrued under the provisions
of Article 27 hereof after the date of such disaffirmance, rejection or
termination with respect to any period prior thereto. If any such prior Tenant
shall default in its obligation to enter into said new lease for a period of
thirty (30) days next following Landlord's request therefor, then, in addition
to all other rights and remedies by reason of such default, either at law or in
equity, Landlord shall have the same rights and remedies against such Tenant as
if such Tenant had entered into such new lease and such new lease had thereafter
been terminated as of the commencement date thereof by reason of such Tenant's
default thereunder.
Section 12.6. (A) Notwithstanding the provisions of Section 12.1 hereof, if
Landlord shall not exercise its rights pursuant to paragraph (B) of this Section
12.6, Landlord shall not unreasonably withhold or delay its consent to any
subletting of the Premises, provided that:
(1) the Premises shall not, without Landlord's prior consent,
have been listed or otherwise publicly advertised for subletting at a rental
rate less than the greater of (i) the sum of the Fixed Rent, Electricity
Additional Rent (if applicable), and Escalation Rent then payable hereunder, and
(ii) the prevailing rental rate set by Landlord for comparable space in the
Building or if there is no comparable space, the prevailing rental rate
reasonably determined by Landlord (the "Prevailing Rate");
(2) Intentionally Omitted Prior to Execution;
(3) no Event of Default shall have occurred and be continuing;
(4) upon the date Tenant delivers the Tenant Statement to
Landlord and upon the date immediately preceding the commencement date of any
sublease approved by Landlord, the proposed subtenant shall have a financial
standing (taking into consideration the
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obligations of the proposed subtenant under the sublease) reasonably
satisfactory to Landlord, be of a character, be engaged in a business, and
propose to use the Premises in a manner in keeping with the standards in such
respects of the other tenancies in the Building;
(5) the proposed subtenant (or any Person who directly or
indirectly, Controls, is Controlled by or is under common Control with the
proposed subtenant) shall not be a tenant or subtenant of any space in the
Building, nor shall the proposed subtenant (or any Person who directly or
indirectly, Controls, is Controlled by or is under common Control with the
proposed subtenant) be a Person with whom Landlord is negotiating or discussing
to lease space in the Building; if Tenant shall propose to sublease space and is
about to commence negotiations with a tenant, subtenant or prospective
subtenant, Tenant shall advise Landlord of the identity of such prospective
subtenant and Landlord shall promptly advise Tenant if the execution of a
sublease with such tenant, subtenant or prospective subtenant would violate the
provisions of this clause (5);
(6) the character of the business to be conducted or the proposed
use of the Premises by the proposed subtenant shall not (a) be likely to
increase (beyond a de minimis amount) Landlord's operating expenses beyond that
which would be incurred for use by Tenant or for use in accordance with the
standards of use of other tenancies in the Building; (b) increase (beyond a de
minimis amount) the burden on existing cleaning services or elevators over the
burden prior to such proposed subletting; (c) violate any provision or
restrictions herein relating to the use or occupancy of the Premises; or (d)
require any alterations, installations, improvements, additions or other
physical changes to be performed in or made to any portion of the Building or
the Real Property other than the Premises; if Landlord shall have consented to
a sublease and, as a result of the use and occupancy of the subleased portion of
the Premises by the subtenant, operating expenses are increased, then Tenant
shall pay to Landlord, within fifteen (15) Business Days after demand, as
additional rent, all resulting increases in operating expenses;
(7) the subletting shall be expressly subject to all of the
terms, covenants, conditions and obligations on Tenant's part to be observed and
performed under this Lease and the further condition and restriction that the
sublease shall not be modified without the prior written consent of Landlord,
which consent shall not be unreasonably withheld, or assigned (by operation of
law or otherwise; for purposes of this clause (7), the transfer of a majority of
the issued and outstanding capital stock of any corporate subtenant or the
transfer of a majority of the total interest in a subtenant (if a partnership or
other entity), however accomplished, whether in a single transaction or in a
series of related or unrelated transactions, shall be deemed an assignment of
the sublease, except that the transfer of the outstanding capital stock of a
corporate subtenant shall be deemed not to include the sale of such stock by
persons other than those deemed "insiders" within the meaning of the Securities
Exchange Act of 1934, as amended, which sale is effected through the "over-the-
counter market" or through any recognized stock exchange) encumbered or
otherwise transferred or the subleased premises further sublet by the subtenant
in whole or in part, or any part thereof suffered or permitted by the subtenant
to be used or occupied by others, without the prior written consent of Landlord
in each instance;
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(8) the subletting shall end no later than one (1) day before the
Expiration Date and shall not be for a term of less than two (2) years unless it
commences less than two (2) years before the Expiration Date;
(9) no subletting shall be for less than the entire Premises,
unless to a Related Entity; and
(10) such sublease shall expressly provide that in the event
of termination, re-entry or dispossess of Tenant by Landlord under this Lease,
Landlord may, at its option, take over all of the right, title and interest of
Tenant, as sublessor under such sublease, and such subtenant, at Landlord's
option, shall attorn to Landlord pursuant to the then executory provisions of
such sublease, except that Landlord shall not be:
(i) liable for any act or omission of Tenant under such
sublease, or
(ii) subject to any defense or offsets which such subtenant
may have against Tenant, or
(iii) bound by any previous payment which such subtenant
may have made to Tenant more than thirty (30) days in advance of the date upon
which such payment was due, unless previously approved by Landlord, or
(iv) bound by any obligation to make any payment to or on
behalf of such subtenant, or
(v) bound by any obligation to perform any work or to
make improvements to the Premises, or
(vi) bound by any amendment or modification of such
sublease made without its consent, or
(vii) bound to return such subtenant's security deposit, if
any, until such deposit has come into its actual possession and such subtenant
would be entitled to such security deposit pursuant to the terms of such
sublease.
(B) At least fifteen (15) Business Days prior to any proposed
subletting of the Premises, Tenant shall submit a statement to Landlord (a
"Tenant Statement") containing the following information: (a) the name and
address of the proposed subtenant, (b) the terms and conditions of the proposed
subletting, including, without limitation, the rent payable and the value
(including cost, overhead and supervision) of any improvements (including any
demolition to be performed) to the Premises for occupancy by such subtenant, (c)
the nature and character of the business of the proposed subtenant, and (d) any
other information that Landlord may reasonably
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request, together with a statement specifically directing Landlord's attention
to the provisions of this Section 12.6(B) requiring Landlord to respond to
Tenant's request within fifteen (15) Business Days after Landlord's receipt of
the Tenant Statement. Landlord shall have the right, exercisable by notice to
Tenant within fifteen (15) Business Days after Landlord's receipt of the Tenant
Statement, to sublet (in its own name or that of its designee) the Premises
("Recapture Space") from Tenant on the terms and conditions set forth in the
Tenant Statement, subject to the further provisions of paragraph (C) of this
Section 12.6. If Landlord shall fail to notify Tenant within said fifteen (15)
Business Day period of Landlord's intention to exercise its rights pursuant to
this Section 12.6(B) or of Landlord's consent to or disapproval of the proposed
subletting pursuant to the Tenant Statement as contemplated by Section 12.6(A)
hereof, or if Landlord shall have consented to such subletting as provided in
Section 12.6(A) hereof, Tenant shall have the right to sublease the Premises to
such proposed subtenant on the same terms and conditions set forth in the Tenant
Statement, subject to the terms and conditions of this Lease, including, without
limitation, paragraph (A) of this Section 12.6. If Tenant shall not enter into
such sublease within sixty (60) days after the delivery of the Tenant Statement
to Landlord, then the provisions of Section 12.1 hereof and this Section 12.6
shall again be applicable to any other proposed subletting. If Tenant shall
enter into such sublease within sixty (60) days as aforesaid, Tenant shall
deliver a true, complete and fully executed counterpart of such sublease to
Landlord within five (5) days after execution thereof.
(C) If Landlord exercises its option to sublet the Recapture Space,
such sublease to Landlord or its designee as subtenant (each, a "Recapture
Sublease") shall:
(1) be at a rental equal to the lesser of (x) the sum of the
Fixed Rent and Escalation Rent then payable hereunder and (y) the sublease rent
set forth in the Tenant Statement and otherwise be upon the same terms and
conditions as those contained in this Lease (as modified by the Tenant
Statement, except such as are irrelevant or inapplicable and except as otherwise
expressly set forth to the contrary in this paragraph (C);
(2) give the subtenant the unqualified and unrestricted right,
without Tenant's permission, to assign such sublease and to further sublet the
Recapture Space or any part thereof and to make any and all changes,
alterations, and improvements in the Recapture Space;
(3) provide in substance that any such changes, alterations, and
improvements made in the Recapture Space may be removed, in whole or in part,
prior to or upon the expiration or other termination of the Recapture Sublease
provided that any material damage and injury caused thereby shall be repaired
(it being expressly understood and agreed that Tenant shall not be required to
remove or responsible for the performance of any Alterations which Landlord or
its designee as subtenant under the Recapture Sublease shall install in the
Recapture Space);
(4) provide that (i) the parties to such Sublease expressly
negate any intention that any estate created under such Sublease be merged with
any other estate held by either of said parties, (ii) prior to the commencement
of the term of the Recapture Sublease, Tenant, at its sole cost and expense
(unless the Tenant Statement provides otherwise), shall make such alterations
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as may be required or reasonably deemed necessary by the subtenant, and (iii) at
the expiration of the term of such Sublease, Tenant shall accept the Recapture
Space in its then existing condition, broom clean; and
(5) provide that the subtenant or occupant may use and occupy the
Recapture Space for any lawful purpose (without regard to any limitation set
forth in the Tenant Statement).
(D) Performance by Landlord, or its designee, under a Recapture
Sublease shall be deemed performance by Tenant of any similar obligation under
this Lease and Tenant shall not be liable for any default under this Lease or
deemed to be in default hereunder if such default is occasioned by or arises
from any act or omission of the subtenant under the Recapture Sublease or is
occasioned by or arises from any act or omission of any occupant under the
Recapture Sublease.
(E) If Landlord is unable to give Tenant possession of the Recapture
Space at the expiration of the term of the Recapture Sublease by reason of the
holding over or retention of possession of any tenant or other occupant, then
(w) Landlord shall continue to pay all charges previously payable, and comply
with all other obligations, under the Recapture Sublease until the date upon
which Landlord shall give Tenant possession of the Recapture Space free of
occupancies, (x) neither the Expiration Date nor the validity of this Lease
shall be affected, (y) Tenant waives any rights under Section 223-a of the Real
Property Law of New York, or any successor statute of similar import, to rescind
this Lease and further waives the right to recover any damages from Landlord
which may result from the failure of Landlord to deliver possession of the
Recapture Space at the end of the term of the Recapture Sublease, and (z)
Landlord, at Landlord's expense, shall use its reasonable efforts to deliver
possession of the Recapture Space to Tenant and in connection therewith, if
necessary, shall institute and diligently and in good faith prosecute holdover
and any other appropriate proceedings against the occupant of such Space; if
Landlord fails to prosecute such proceedings in such manner and such failure
continues after reasonable notice thereof by Tenant, Tenant may prosecute such
proceedings in Landlord's name and at Landlord's expense.
(F) The failure by Landlord to exercise its option under Section
12.6(B) with respect to any subletting shall not be deemed a waiver of such
option with respect to any extension of such subletting or any subsequent
subletting of the Premises affected thereby.
Section 12.7. (A) In connection with any subletting of the Premises,
Tenant shall pay to Landlord an amount equal to fifty percent (50%) of any
Sublease Profit derived therefrom. Anything contained herein to the contrary
notwithstanding Tenant shall not be entitled to any proceeds derived from or
relating to (directly or indirectly) any subletting of the Recapture Space by
Landlord or its designee to a subtenant. All sums payable hereunder by Tenant
shall be calculated on an annualized basis, but shall be paid to Landlord, as
additional rent, within ten (10) days after receipt thereof by Tenant.
(B) For purposes of this Lease:
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(1) "Sublease Profit" shall mean the excess of (i) the Sublease
Rent over (ii) the then Fixed Rent, Escalation Rent and, if applicable,
Electricity Additional Rent.
(2) "Sublease Rent" shall mean any rent or other consideration
paid to Tenant directly or indirectly by any subtenant or any other amount
received by Tenant from or in connection with any subletting (including, but not
limited to, sums paid for the sale or rental, or consideration received on
account of any contribution, of Tenant's Property or sums paid in connection
with the supply of electricity or HVAC) less the Sublease Expenses.
(3) "Sublease Expenses" shall mean: (i) in the event of a sale of
Tenant's Property, the then unamortized or undepreciated cost thereof determined
on the basis of Tenant's federal income tax returns, (ii) the reasonable out-of-
pocket costs and expenses of Tenant in making such sublease, such as brokers'
fees, attorneys' fees, and advertising fees paid to unrelated third parties,
(iii) any sums paid to Landlord pursuant to Section 12.2(B) hereof, (iv) the
cost of improvements or alterations made by Tenant expressly and solely for the
purpose of preparing that portion of the Premises for such subtenancy (or cash
allowances in lieu thereof, provided that the same are consistent with the then
existing market conditions in midtown Manhattan) if not used by Tenant
subsequent to the expiration of the term of the sublease, and (v) the
unamortized or undepreciated cost of any Tenant's Property leased to and used by
such subtenant. In determining Sublease Rent, the costs set forth in clauses
(ii), (iii) and (iv) shall be amortized on a straight-line basis over the term
of such sublease and the costs set forth in clause (v) shall be amortized on a
straight line basis over the greater of the longest useful life of such
improvements, alterations or Property (as permitted pursuant to the Internal
Revenue Code of 1986, as amended) and the term of such sublease.
(4) Sublease Profit shall be recalculated from time to time to
reflect any corrections in the prior calculation thereof due to (i) subsequent
payments received or made by Tenant, (ii) the final adjustment of payments to be
made by or to Tenant, and (iii) mistake. Promptly after receipt or final
adjustment of any such payments or discovery of any such mistake, Tenant shall
submit to Landlord a recalculation of the Sublease Profit, and an adjustment
shall be made between Landlord and Tenant, on account of prior payments made or
credits received pursuant to this Section 12.7. In addition, if Sublease
Expenses utilized for the purpose of calculating Sublease Profit included an
amount attributable to the cost of the improvements made by Tenant expressly and
solely for the purpose of preparing the Premises for the occupancy of the
subtenant and subsequent to the expiration of the sublease such improvements
and/or alterations were not demolished and/or removed, Sublease Profits shall be
recalculated as if the cost of such improvements and/or alterations were not
incurred by Tenant and Tenant promptly shall pay to Landlord fifty percent (50%)
of the additional amount of such Sublease Profit resulting from such
recalculation.
Section 12.8. (A) Notwithstanding the provisions of Section 12.1 hereof, if
Landlord shall not exercise its rights pursuant to paragraph (B)(2) of this
Section 12.8, Landlord shall not unreasonably withhold its consent to an
assignment of this Lease in its entirety provided that:
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(1) no Event of Default shall have occurred and be continuing;
(2) upon the date Tenant delivers the Assignment Statement to
Landlord and upon the date immediately preceding the date of any assignment
approved by Landlord, the proposed assignee shall have a financial standing
(taking into consideration the obligations of the proposed assignee under this
Lease) reasonably satisfactory to Landlord, be of a character, be engaged in a
business, and propose to use the Premises in a manner in keeping with the
standards in such respects of the other tenancies in the Building;
(3) the proposed assignee (or any Person who directly or
indirectly, Controls, is Controlled by or is under common Control with the
proposed assignee) shall not be a person or entity with whom Landlord is
negotiating to lease space in the Building at the time of receipt of an
Assignment Statement;
(4) the character of the business to be conducted or the proposed
use of the Premises by the proposed assignee shall not (a) be likely to increase
(beyond a de minimis amount) Landlord's operating expenses beyond that which
would be incurred for use by Tenant or for use in accordance with the standards
of use of other tenancies in the Building; (b) increase (beyond a de minimis
amount) the burden on existing cleaning services or elevators over the burden
prior to such proposed assignment; (c) violate any provision or restrictions
herein relating to the use or occupancy of the Premises; (d) require any
alterations, installations, improvements, additions or other physical changes to
be performed in or made to any portion of the Building or the Real Property
other than the Premises; or (e) violate any provision or restrictions in any
other lease for space in the Building or in any Superior Lease or Mortgage; if
Landlord shall have consented to an assignment and, as a result of the use and
occupancy of the Premises by Tenant/assignee, operating expenses are increased,
then Tenant shall pay to Landlord, within fifteen (15) Business Days after
demand, as additional rent, all resulting increases in operating expenses; and
(5) the assignee shall agree to assume all of the obligations of
Tenant under this Lease from and after the date of the assignment.
(B) (1) At least fifteen (15) Business Days prior to any proposed
assignment, Tenant shall submit a statement to Landlord (the "Assignment
Statement") containing the following information: (i) the name and address of
the proposed assignee, (ii) the essential terms and conditions of the proposed
assignment, including, without limitation, the consideration payable for such
assignment and the value (including cost, overhead and supervision) of any
improvements (including any demolition to be performed) to the Premises proposed
to be made by Tenant to prepare the Premises for occupancy by such assignee,
(iii) the nature and character of the business of the proposed assignee, and
(iv) any other information that Landlord may reasonably request, together with a
statement specifically directing Landlord's attention to the provisions of this
Section 12.8(B) requiring Landlord to respond to Tenant's request within fifteen
(15) Business Days after Landlord's receipt of the Assignment Statement. The
Assignment Statement shall be executed by Tenant and the proposed assignee and
shall indicate both parties' intent (but not necessarily binding
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obligation) to enter into an assignment agreement conforming to the terms and
conditions of the Assignment Statement and on such other terms and conditions to
which the parties may agree which are not inconsistent with the essential terms
set forth in the Assignment Statement.
(2) Landlord shall have the right, exercisable within fifteen
(15) Business Days after Landlord's receipt of the Assignment Statement, to take
an assignment of this Lease (in its own name or that of its designee) for the
same consideration payable to Tenant pursuant to the terms of the Assignment
Statement (less the amount of any brokerage commission which would have been
payable on account of the assignment pursuant to the Assignment Statement),
provided Landlord shall take possession of the Premises "as is" in its condition
as of the date of such assignment and shall be entitled to a credit against the
consideration otherwise payable in the amount, if any, of the value of any
improvements, work or demolition proposed to be provided or performed by Tenant
pursuant to the Assignment Statement.
(3) If Landlord shall fail to notify Tenant within said fifteen
(15) Business Day period of Landlord's intention to exercise its rights pursuant
to paragraph (B)(2) of this Section 12.8 or of Landlord's consent to or
disapproval of the proposed assignment pursuant to the Assignment Statement, or
if Landlord shall have consented to such assignment as provided in Section
12.8(A) hereof, Tenant shall be free to assign the Premises to such proposed
assignee on the same terms and conditions set forth in the Assignment Statement.
If Tenant shall not enter into such assignment within sixty (60) days after the
delivery of the Assignment Statement to Landlord, then the provisions of this
Section 12.8 shall again be applicable in their entirety to any proposed
assignment.
(4) If Tenant shall propose to assign this Lease and is about to
commence negotiations with a prospective assignee, Tenant shall advise Landlord
of the identity of such prospective assignee and Landlord shall, within five (5)
Business Days, advise Tenant if the execution of an assignment agreement with
such prospective assignee would violate the provisions of paragraph (A)(3)
of this Section 12.8.
(C) If Tenant shall assign this Lease, Tenant shall deliver to
Landlord, within five (5) days after execution thereof, (x) a duplicate original
instrument of assignment in form and substance reasonably satisfactory to
Landlord, duly executed by Tenant, and (y) an instrument in form and substance
reasonably satisfactory to Landlord, duly executed by the assignee, in which
such assignee shall assume observance and performance of, and agree to be
personally bound by, all of the terms, covenants and conditions of this Lease on
Tenant's part to be observed and performed.
(D) Tenant shall pay to Landlord, upon receipt thereof, an amount
equal to fifty percent (50%) of all Assignment Proceeds. For purposes of this
paragraph (D), "Assignment Proceeds" shall mean all consideration payable to
Tenant, directly or indirectly, by any assignee, including Landlord pursuant to
paragraph (B) of this Section 12.8, or any other amount received by Tenant from
or in connection with any assignment (including, but not limited to, sums paid
for the
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sale or rental, or consideration received on account of any contribution, of
Tenant's Property) after deducting therefrom: (i) in the event of a sale (or
contribution) of Tenant's Property, the then unamortized or undepreciated cost
thereof determined on the basis of Tenant's federal income tax returns, (ii) the
reasonable out-of-pocket costs and expenses of Tenant in making such assignment,
such as brokers' fees, attorneys' fees, and advertising fees paid to unrelated
third parties, (iii) any payments required to be made by Tenant in connection
with the assignment of its interest in this Lease pursuant to Article 31 of the
Tax law of the State of New York or any real property transfer tax of the United
States or the City or State of New York (other than any income tax), (iv) any
sums paid by Tenant to Landlord pursuant to Section 12.2(B) hereof, (v) the cost
of improvements or alterations made by Tenant expressly and solely for the
purpose of preparing the Premises for such assignment, as determined by Tenant's
federal income tax returns, (vi) the unamortized or undepreciated cost of any
Tenant's Property leased to and used by such assignee, and (vii) the then
unamortized or undepreciated cost of the Alterations determined on the basis of
Tenant's federal income tax returns less the Tenant Fund. If the consideration
paid to Tenant for any assignment shall be paid in installments, then the
expenses specified in this paragraph (D) shall be amortized over the period
during which such installments shall be payable. If Landlord exercises its right
to take an assignment of this Lease pursuant to the provisions of Section
12.8(B) hereof, in no event shall Tenant be entitled to any proceeds derived
from or relating to (directly or indirectly) any lease or sublease of the
Premises by Landlord or further assignment of the Lease.
Section 12.9. Notwithstanding any other provision of this Lease, neither
Tenant nor any direct or indirect assignee or subtenant of Tenant may enter into
any lease, sublease, license, concession or other agreement for use, occupancy
or utilization of space in the Premises which provides for a rental or other
payment for such use, occupancy or utilization based in whole or in part on the
net income or profits derived by any person from the property leased, occupied
or utilized, or which would require the payment of any consideration which would
not fall within the definition of "rents from real property", as that term is
defined in Section 856(d) of the Internal Revenue Code of 1986, as amended.
ARTICLE 13
ELECTRICITY
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Section 13.1. Tenant shall at all times comply with the rules, regulations,
terms and conditions applicable to service, equipment, wiring and requirements
of the public utility supplying electricity to the Building. The risers serving
the Premises shall be capable of supplying five (5) watts of electricity per
usable square foot of the Premises and Tenant shall not use any electrical
equipment which, in Landlord's reasonable judgment, would exceed such capacity
or interfere with the electrical service to other tenants of the Building. In
the event that, in Landlord's sole judgment, Tenant's electrical requirements
necessitate installation of an additional riser, risers or other proper and
necessary equipment, Landlord shall so notify Tenant of same. Within five (5)
Business Days after receipt of such notice, Tenant shall either cease such use
of such additional electricity or shall request that additional electrical
capacity (specifying the amount requested) be made available to
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Tenant. Landlord, in Landlord's reasonable judgment (taking into consideration
the potential needs of present and future tenants of the Building and of the
Building itself) shall determine whether to make available such additional
electrical capacity to Tenant and the amount of such additional electrical
capacity to be made available. If Landlord shall agree to make available
additional electrical capacity and the same necessitates installation of an
additional riser, risers or other proper and necessary equipment, including,
without limitation, any switchgear, the same shall be installed by Landlord. Any
such installation shall be made at Tenant's sole cost and expense, and shall be
chargeable and collectible as additional rent and paid within fifteen (15)
Business Days after the rendition of a bill to Tenant therefor. Landlord shall
not be liable in any way to Tenant for any failure or defect in the supply or
character of electric service furnished to the Premises by reason of any
requirement, act or omission of the utility serving the Building or for any
other reason not attributable to the negligence of Landlord, whether electricity
is provided by public or private utility or by any electricity generation system
owned and operated by Landlord.
Section 13.2. (A) Unless Landlord elects to supply electricity to the
Premises pursuant to Section 13.3 or Landlord is required to have Tenant obtain
electricity from the public utility furnishing electricity to the Building
pursuant to the provisions of Section 13.4 hereof, Landlord shall furnish
electric current to the Premises for the use of Tenant for the operation of the
lighting fixtures and the electrical receptacles for ordinary office equipment,
including a reasonable number of personal desktop computers, print copies,
facsimile machines, and other equipment of similar kind or nature, in the
Premises on a "rent inclusion" basis, that is, there shall be no separate charge
to Tenant for such electric current by way of measuring such electricity service
on any meter. The Fixed Rent set forth in this Lease includes an annual charge
for electricity service of Twenty-Six Thousand Two Hundred Twenty-Six and 90/100
Dollars ($26,226.90) (such amount, as it may be increased pursuant to the
provisions of this Lease, being referred to as the "Electricity Inclusion
Factor"). The parties agree that although the charge for furnishing electrical
energy is included in the Fixed Rent on a so-called "rent inclusion" basis, the
value to Tenant of such service may not be fully reflected in the Fixed Rent.
Accordingly, Tenant agrees that Landlord, at Landlord's option, may cause a
reputable and independent electrical engineer or electrical consulting firm,
selected by Landlord (such engineer or consulting firm being hereinafter
referred to as "Landlord's Engineer"), to make a determination, following the
commencement of Tenant's normal business activities in the Premises, of the Full
Value of such service to Tenant. As used herein, the "Full Value" to Tenant of
such service shall mean the product obtained by multiplying the demand and
consumption of electric energy at the Premises by the Electric Rate. Landlord's
Engineer shall certify such determination in writing to Landlord and Tenant. If
the Full Value to Tenant is in excess of the Electricity Inclusion Factor, the
Electricity Inclusion Factor and the Fixed Rent shall be increased by such
excess. However, if it shall be so determined that the Full Value to Tenant of
such service does not exceed the Electricity Inclusion Factor, there shall
nevertheless be no decrease in the Electricity Inclusion Factor or in the Fixed
Rent.
(B) If during the Term the Electric Rate shall increase over the Base
Electric Rate, the Electricity Inclusion Factor (and therefore the Fixed Rent)
shall be proportionately increased.
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(C) (i) Landlord, from time to time during the Term, may cause
Landlord's Engineer to survey the demand and consumption of electrical energy at
the Premises. If the then Full Value shall exceed the then Electricity Inclusion
Factor, the Electricity Inclusion Factor (and therefore the Fixed Rent), shall
be proportionately increased, based on the increased demand and consumption and
the then prevailing Electric Rate.
(ii) Landlord shall furnish to Tenant a written statement (an
"Electricity Statement") setting forth Landlord's determination of any increase
which has occurred in the Full Value and the Electricity Inclusion Factor (and
therefore the Fixed Rent) pursuant to the provisions of either Sections 13.2(A),
(B), or (C)(i). Any such increase in the Electricity Inclusion Factor and the
Fixed Rent shall be effective as of the date of such increase in the Electric
Rate or the consumption and demand of electric energy by Tenant and shall be
retroactive to such dates if necessary. Any retroactive increase shall be paid
by Tenant within fifteen (15) Business Days after demand and such amount shall
be collectible by Landlord as Fixed Rent hereunder.
(iii) Each such Electricity Statement given by Landlord pursuant
to Section 13.2(C)(ii) above, shall be conclusive and binding upon Tenant,
unless within thirty (30) days after the receipt of such Electricity Statement,
Tenant shall notify Landlord that it disputes the correctness of the Electricity
Statement. If such dispute is based on Tenant's demand and consumption of
electric current, Tenant shall submit a survey and determination of such
adjustment, made at its sole cost and expense, by a reputable and independent
electrical engineer or electrical consulting firm ("Tenant's engineer"), within
thirty (30) days after receipt of such Electricity Statement. If Landlord and
Tenant are unable to resolve the dispute differences between them within thirty
(30) days after receipt by Landlord of a copy of the determination of Tenant's
Engineer, the dispute shall be decided by a third reputable and independent
electrical engineer or electrical consulting firm ("Third Engineer"). If the
parties shall fail to agree upon the designation of the Third Engineer within
forty (40) days after the receipt by Landlord of the determination of Tenant's
Engineer, then either party may apply to the American Arbitration Association or
any successor thereto for the designation of the Third Engineer. The Third
Engineer shall conduct such hearings as he deems appropriate. The Third
Engineer, within thirty (30) days after his designation, shall select the
determination of either Landlord's Engineer or Tenant's Engineer and such
determination shall be conclusive and binding upon the parties whether or not a
judgment shall be entered in any court. The fees of the Third Engineer and the
costs of arbitration shall be paid equally by the parties, except that each
party shall pay its own counsel fees and expenses, if any, in connection with
the arbitration. Pending the resolution of such dispute by agreement or
arbitration as aforesaid, Tenant shall pay the increase in the Electricity
Inclusion Factor in accordance with the Electricity Statement, without prejudice
to Tenant's position, as herein provided. If the dispute shall be resolved
Tenant's favor, Landlord, at its option, shall either credit the amount of such
overpayment against subsequent monthly installments of Fixed Rent hereunder or
pay to Tenant the amount of such overpayment.
(D) Landlord's failure during the Term to prepare and deliver any
Electricity Statement, or bills, or Landlord's failure to make a demand, under
this Article or any other provisions
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of this Lease, shall not in any way be deemed to be a waiver of, or cause
Landlord to forfeit or surrender, its rights to collect any portion of the
increase in the Electricity Inclusion Factor (and therefore the Fixed Rent)
which may have become due pursuant to this Article 13 during the Term. Tenant's
liability for the amounts due under this Article 13 shall survive the expiration
or sooner termination of this Lease and Landlord's obligation, if any, to refund
any payments by Tenant in excess of the amounts required to be paid by Tenant to
Landlord pursuant to this Article 13 shall survive the expiration or sooner
termination of this Lease. The preceding sentence shall not, however, be
construed as limiting or restricting, in any manner whatsoever, Landlord's right
pursuant to this Lease or pursuant to law to offset any such overpayments by
Tenant against any amounts which may be due and payable as provided in this
Lease.
(E) In no event shall any adjustment of the payments made or to be
made hereunder result in a decrease in Fixed Rent or additional rent payable
pursuant to any other provision of this Lease, or in the amount paid for
electricity for the prior year.
(F) The Electricity Inclusion Factor shall be collectible by Landlord
in the same manner as Fixed Rent.
(G) For the purposes of this Section 13.2, Landlord and Tenant agree
that the term "Electric Rate" (including all applicable surcharges, demand
charges, energy charges, fuel adjustment charges, time of day charges, taxes and
other sums payable in respect thereof) shall mean the service classification
pursuant to which Landlord purchases electricity from the utility company
servicing the Building.
(H) If Landlord discontinues furnishing electricity to Tenant pursuant
to this Section 13.2, the Fixed Rent shall be decreased by the Electricity
Inclusion Factor effective as of the date Landlord discontinues the provision of
electricity in such manner.
Section 13.3. (A) If Landlord shall no longer elect to have electricity
furnished to the Premises pursuant to Section 13.2 hereof then, unless Landlord
is required to have Tenant obtain electricity from the public utility company
furnishing electricity to the Building pursuant to the provisions of Section
13.4 hereof, electricity shall be furnished by Landlord to the Premises and
Tenant shall pay to Landlord, as additional rent for such service, during the
Term, an amount (the "Electricity Additional Rent") equal to (i) the amount
Landlord actually pays to the utility company to provide electricity to the
Premises, including all applicable surcharges, demand charges, time-of-day
charges, energy charges, fuel adjustment charges, rate adjustment charges, taxes
and other sums payable in respect thereof, based on Tenant's demand and/or
consumption of electricity (and/or any other method of quantifying Tenant's use
of or demand for electricity as set forth in the utility company's tariff) as
registered on a meter or submeter (installed by Landlord at Landlord's sole cost
and expense) for purposes of measuring such demand, consumption and/or other
method of quantifying Tenant's use of or demand for electricity (it being agreed
that such meter or submeter shall measure demand and consumption, and off-peak
and on-peak use, in either case to the extent such factors are relevant in
making the determination of Landlord's cost) plus (ii) an amount equal
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to the out-of-pocket costs and expenses incurred by Landlord in connection with
reading such meters and preparing bills therefor. Tenant, from time to time,
shall have the right to review Landlord's meter readings, and Landlord's
calculation of the Electricity Additional Rent, at reasonable times and on
reasonable prior notice, by giving notice thereof to Landlord on or prior to the
ninetieth (9Oth) day after the date when Landlord gives Tenant a bill or
statement for the Electricity Additional Rent.
(B) Where more than one meter measures the electricity supplied to
Tenant, the electricity rendered through each meter may be computed and billed
separately in accordance with the provisions hereinabove set forth. Bills for
the Electricity Additional Rent shall be rendered to Tenant at such time as
Landlord may elect, and Tenant shall pay the amount shown thereon to Landlord
within ten (10) days after receipt of such bill. Tenant expressly acknowledges
that in connection with the installation of the meters or submeters, the
electricity being supplied to the Premises shall be temporarily interrupted.
Landlord shall use reasonable efforts to minimize interference with the conduct
of Tenant's business in connection with such installation; provided, however,
that Landlord shall have no obligation to employ contractors or labor at so-
called overtime or other premium pay rates or to incur any other overtime costs
or expenses whatsoever.
Section 13.4. If Landlord is required by Requirements or the public utility
serving the Premises to discontinue furnishing electricity to Tenant this Lease
shall continue in full force and effect and shall be unaffected thereby, except
only that from and after the effective date of such discontinuance, Landlord
shall not be obligated to furnish electricity to Tenant and Tenant shall not be
obligated to pay the Electricity Additional Rent. If Landlord so discontinues
furnishing electricity to Tenant, Tenant shall use diligent efforts to obtain
electric energy directly from the public utility furnishing electric service to
the Building. The costs of such service shall be paid by Tenant directly to such
public utility. Such electricity may be furnished to Tenant by means of the
existing electrical facilities serving the Premises, at no charge, to the extent
the same are available, suitable and safe for such purposes as determined by
Landlord. All meters and all additional panel boards, feeders, risers, wiring
and other conductors and equipment which may be required to obtain electricity
shall be installed by Landlord at Tenant's expense. Provided Tenant shall use
and continue to use diligent efforts to obtain electric energy directly from the
public utility, Landlord, to the extent permitted by applicable Requirements,
shall not discontinue furnishing electricity to the Premises until such
installations have been made and Tenant shall be able to obtain electricity
directly from the public utility.
ARTICLE 14
ACCESS TO PREMISES
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Section 14.1. (A) Tenant shall permit Landlord, Landlord's agents,
representatives, contractors and employees and public utilities servicing the
Building to erect, use and maintain, concealed ducts, pipes and conduits in and
through the Premises. Landlord, Landlord's agents,
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representatives, contractors, and employees and the agents, representatives,
contractors, and employees of public utilities servicing the Building shall have
the right to enter the Premises at all reasonable times upon reasonable prior
notice (except in the case of an emergency in which event Landlord and
Landlord's agents, representatives, contractors, and employees may enter without
prior notice to Tenant), which notice may be oral, to examine the same, to show
them to prospective purchasers, or prospective or existing Mortgagees or
Lessors, and to make such repairs, alterations, improvements, additions or
restorations (i) as Landlord may deem necessary or desirable to the Premises or
to any other portion of the Building, or (ii) which Landlord may elect to
perform following ten (10) days after notice, except in the case of an emergency
(in which event Landlord and Landlord's agents, representatives, contractors,
and employees may enter without prior notice to Tenant), following Tenant's
failure to make repairs or perform any work which Tenant is obligated to make or
perform under this Lease, or (iii) for the purpose of complying with any
Requirements, a Superior Lease or a Mortgage, and Landlord shall be allowed to
take all material into and upon the Premises that may be required therefor
without the same constituting an eviction or constructive eviction of Tenant in
whole or in part and the Fixed Rent (and any other item of Rental) shall in no
wise abate (except to the extent expressly set forth in Section 14.2 hereof)
while said repairs, alterations, improvements, additions or restorations are
being made, by reason of loss or interruption of business of Tenant, or
otherwise.
(B) Any work performed or installations made pursuant to this Article
14 shall be made with reasonable diligence and otherwise pursuant to the
provisions of Section 4.3 hereof.
(C) Except as hereinafter provided, any pipes, ducts, or conduits
installed in or through the Premises pursuant to this Article 14 shall be
concealed behind, beneath or within partitioning, columns, ceilings or floors
located or to be located in the Premises. Notwithstanding the foregoing, any
such pipes, ducts, or conduits may be furred at points immediately adjacent to
partitioning columns or ceilings located or to be located in the Premises,
provided that the same are completely furred and that the installation of such
pipes, ducts, or conduits, when completed, shall not reduce the usable area of
the Premises beyond a de minimis amount.
Section 14.2. If due to any work or installation performed by Landlord
hereunder or failure by Landlord to perform its obligations hereunder (other
than by reason of Unavoidable Delays, (i) Tenant shall be unable for at least
twenty (20) consecutive Business Days to operate its business in the Premises in
substantially the same manner as such business was operated prior to the
performance of such work or installation or such failure, (ii) such interruption
shall occur during business hours, and (iii) Tenant shall have been unable,
after using reasonable efforts, to relocate its employees and property located
in that portion of the Premises which is the subject of such work or
installation or such failure so as to have been unable to have continued to
operate its business, the Fixed Rent and the Escalation Rent shall be reduced on
a per diem basis in the proportion in which the area of the portion of the
Premises which is unusable bears to the total area of the Premises for each day
subsequent to the aforesaid twenty (20) day period that such portion of the
Premises remains unusable.
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Section 14.3. During the twelve (12) month period prior to the Expiration
Date, Landlord may exhibit the Premises to prospective tenants thereof.
Section 14.4. If Tenant shall not be present when for any reason entry into
the Premises shall be necessary or permissible, Landlord or Landlord's agents,
representatives, contractors or employees may enter the same without rendering
Landlord or such agents liable therefor if during such entry Landlord or
Landlord's agents shall accord reasonable care under the circumstances to
Tenant's Property, and without in any manner affecting this Lease. Nothing
herein contained, however, shall be deemed or construed to impose upon Landlord
any obligation, responsibility or liability whatsoever, for the care,
supervision or repair of the Building or any part thereof, other than as herein
provided.
Section 14.5. Landlord also shall have the right at any time, without the
same constituting an actual or constructive eviction and without incurring any
liability to Tenant therefor, to change the arrangement or location of entrances
or passageways, doors and doorways, and corridors, elevators, stairs, toilets,
or other public parts of the Building and to change the name, number or
designation by which the Building is commonly known, provided any such change
does not (a) unreasonably reduce, interfere with or deprive Tenant of access to
the Building or the Premises or (b) reduce the rentable area (except by a de
minimis amount) of the Premises. All parts (except surfaces facing the interior
of the Premises) of all walls, windows and doors bounding the Premises
(including exterior Building walls, exterior core corridor walls, exterior doors
and entrances), all balconies, terraces and roofs adjacent to the Premises, all
space in or adjacent to the Premises used for shafts, stacks, stairways, chutes,
pipes, conduits, ducts, fan rooms, heating, air cooling, plumbing and other
mechanical facilities, service closets and other Building facilities are not
part of the Premises, and Landlord shall have the use thereof, as well as access
thereto through the Premises for the purposes of operation, maintenance,
alteration and repair.
ARTICLE 15
CERTIFICATE OF OCCUPANCY
Tenant shall not at any time use or occupy the Premises in violation of the
certificate of occupancy at such time issued for the Premises or for the
Building and in the event that any department of the City or State of New York
shall hereafter contend or declare by notice, violation, order or in any other
manner whatsoever that the Premises are used for a purpose which is a violation
of such certificate of occupancy, Tenant, upon written notice from Landlord or
any Governmental Authority, shall immediately discontinue such use of the
Premises. On the Commencement Date a temporary or permanent certificate of
occupancy covering the Premises will be in force permitting the Premises to be
used as offices, provided, however, neither such certificate, nor any provision
of this Lease, nor any act or omission of Landlord, shall be deemed to
constitute a representation or warranty that the Premises, or any part thereof,
lawfully may be used or occupied for any particular purpose or in any particular
manner, in contradistinction to mere "office" use.
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ARTICLE 16
DEFAULT
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Section 16.1. Each of the following events shall be an "Event of Default"
hereunder:
(A) If Tenant shall default in the payment when due of any installment
of Fixed Rent and such default shall continue for three (3) Business Days after
notice of such default is given to Tenant, or in the payment when due of any
other item of Rental and such default shall continue for three (3) Business Days
after notice of such default is given to Tenant, or
(B) if Tenant shall default in the observance or performance of any
term, covenant or condition on Tenant's part to be observed or performed under
any other lease with Landlord or Landlord's predecessor in interest of space in
the Building and such default shall continue beyond any grace period set forth
in such other lease for the remedying of such default; or,
(C) if the Premises shall become deserted or abandoned; or
(D) if Tenant's interest or any portion thereof in this Lease shall
devolve upon or pass to any person, whether by operation of law or otherwise,
except as expressly permitted under Article 12 hereof; or
(E) (1) if Tenant shall generally not, or shall be unable to, or shall
admit in writing its inability to, pay its debts as they become due; or
(2) if Tenant shall commence or institute any case, proceeding or
other action (A) seeking relief on its behalf as debtor, or to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with respect
to it or its debts under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization or
relief of debtors, or (B) seeking appointment of a receiver, trustee, custodian
or other similar official for it or for all or any substantial part of its
property; or
(3) if Tenant shall make a general assignment for the benefit of
creditors; or
(4) if any case, proceeding or other action shall be commenced or
instituted against Tenant (A) seeking to have an order for relief entered
against it as debtor or to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts under any existing
or future law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, or (B) seeking appointment of a
receiver, trustee, custodian or other similar official for it or for all or any
substantial part of its property, which in either of such cases (i) results in
any such entry of an order for relief, adjudication of bankruptcy or
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insolvency or such an appointment or the issuance or entry of any other order
having a similar effect or (ii) remains undismissed for a period of sixty (60)
days; or
(5) if any case, proceeding or other action shall be commenced or
instituted against Tenant seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial part of
its property which results in the entry of an order for any such relief which
shall not have been vacated, discharged, or stayed or bonded pending appeal
within sixty (60) days from the entry thereof; or
(6) if Tenant shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts set
forth in clauses (2), (3), (4) or (5) above; or
(7) if a trustee, receiver or other custodian is appointed for
any substantial part of the assets of Tenant which appointment is not vacated or
stayed within seven (7) Business Days; or
(F) if Tenant shall fail more than five (5) times during any twelve
(12) month period to pay any installment of Fixed Rent or any item of Rental
when due, or
(G) if Tenant shall fail to pay any installments of Fixed Rent or
items of Rental when due as required by this Lease, and Landlord shall bring
more than one (1) summary dispossess proceeding during any twelve (12) month
period; or
(H) if (1) this Lease is assigned (or all or a portion of the Premises
are subleased) to a Related Entity, and such (2) Related Entity shall no longer
(i) Control, (ii) be under common Control with, or (iii) be under the Control of
Tenant (or any permitted successor by merger, consolidation or purchase as
provided herein), and (3) Tenant shall not have obtained Landlord's consent to
such assignment or sublease in accordance with the provisions of Article 12
hereof for an assignee or subtenant who shall not be a Related Entity on or
before the date which is the date upon which such Related Entity shall cease to
(x) Control, (y) be under common Control with, or (z) be under the Control of
Tenant (or any permitted successor by merger, consolidation, or purchase as
provided herein) and (a) in the event of an assignment of this Lease, Tenant
shall have failed to, at least fifteen (15) Business Days prior to the date such
assignee shall cease to be a Related Entity, deliver to Landlord a duplicate
original instrument of an assignment and assumption in form and substance
reasonably satisfactory to Landlord, duly executed by such assignee and the
originally named Tenant, whereby the assignee shall assign this Lease and all
rights such assignee may have hereunder to the originally named Tenant, or (b)
in the event of a sublease of the Premises, Tenant shall have failed to, at
least fifteen (15) Business Days prior to the date such subtenant ceases to be a
Related Entity, deliver to Landlord a duplicate original instrument in form and
substance reasonably satisfactory to Landlord, duly executed by such subtenant
and Tenant terminating such sublease; or
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(I) if Landlord shall present the Letter of Credit to the bank which
issued the same in accordance with the provisions of Article 31 hereof, and the
bank shall fail to honor the Letter of Credit and pay the proceeds thereof to
Landlord for any reason whatsoever; or
(J) if Tenant shall default in the observance or performance of any
other term, covenant or condition of this Lease on Tenant's part to be observed
or performed and Tenant shall fail to remedy such default within twenty (20)
days after notice by Landlord to Tenant of such default, or if such default is
of such a nature that it cannot with due diligence be completely remedied within
said period of twenty (20) days and Tenant shall not commence within said period
of twenty (20) days, or shall not thereafter diligently prosecute to completion,
all steps necessary to remedy such default.
Section 16.2. (A) If an Event of Default (i) described in Section 16.1 (E)
hereof shall occur, or (ii) described in Sections 16.1(A), (B), (C), (D), (F),
(G), (H), (I) or (J) shall occur and Landlord, at any time thereafter, at its
option gives written notice to Tenant stating that this Lease and the Term shall
expire and terminate three (3) days after the date Landlord shall give Tenant
such notice, then this Lease and the Term and all rights of Tenant under this
Lease shall expire and terminate as if the date on which the Event of Default
described in clause (i) above occurred or three (3) days after the date of such
notice, pursuant to clause (ii) above, as the case may be, were the Fixed
Expiration Date and Tenant immediately shall quit and surrender the Premises,
but Tenant shall nonetheless be liable for all of its obligations hereunder, as
provided for in Articles 17 and 18 hereof. Anything contained herein to the
contrary notwithstanding, if such termination shall be stayed by order of any
court having jurisdiction over any proceeding described in Section 16.1(E)
hereof, or by federal or state statute, then, following the expiration of any
such stay, or if the trustee appointed in any such proceeding, Tenant or Tenant
as debtor-in-possession shall fail to assume Tenant's obligations under this
Lease within the period prescribed therefor by law or within one hundred twenty
(120) days after entry of the order for relief or as may be allowed by the
court, or if said trustee, Tenant or Tenant as debtor-in-possession shall fail
to provide adequate protection of Landlord's right, title and interest in and to
the Premises or adequate assurance of the complete and continuous future
performance of Tenant's obligations under this Lease as provided in Section
12.3(B), Landlord, to the extent permitted by law or by leave of the court
having jurisdiction over such proceeding, shall have the right, at its election,
to terminate this Lease on five (5) days' notice to Tenant, Tenant as debtor-in-
possession or said trustee and upon the expiration of said five (5) day period
this Lease shall cease and expire as aforesaid and Tenant, Tenant as debtor-in-
possession or said trustee shall immediately quit and surrender the Premises as
aforesaid.
(B) If an Event of Default described in Section 16.1(A) hereof shall
occur, or this Lease shall be terminated as provided in Section 16.2(A) hereof,
Landlord, without notice, may reenter and repossess the Premises using such
force for that purpose as may be necessary without being liable to indictment,
prosecution or damages therefor and may dispossess Tenant by summary proceedings
or otherwise.
Section 16.3. If at any time, (i) Tenant shall be comprised of two (2) or
more persons, or (ii)
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Tenant's obligations under this Lease shall have been guaranteed by any person
other than Tenant, or (iii) Tenant's interest in this Lease shall have been
assigned, the word "Tenant", as used in Section 16.1(E), shall be deemed to mean
any one or more of the persons primarily or secondarily liable for Tenant's
obligations under this Lease. Any monies received by Landlord from or on behalf
of Tenant during the pendency of any proceeding of the types referred to in
Section 16.1(E) shall be deemed paid as compensation for the use and occupation
of the Premises and the acceptance of any such compensation by Landlord shall
not be deemed an acceptance of Rental or a waiver on the part of Landlord of any
rights under Section 16.2.
ARTICLE 17
REMEDIES AND DAMAGES
Section 17.1. (A) If there shall occur any Event of Default, and this Lease
and the Term shall expire and come to an end as provided in Article 16 hereof:
(1) Tenant shall quit and peacefully surrender the Premises to
Landlord, and Landlord and its agents may immediately, or at any time after such
default or after the date upon which this Lease and the Term shall expire and
come to an end, re-enter the Premises or any part thereof, without notice,
either by summary proceedings, or by any other applicable action or proceeding,
or by force or otherwise (without being liable to indictment, prosecution or
damages therefor), and may repossess the Premises and dispossess Tenant and any
other persons from the Premises and remove any and all of their property and
effects from the Premises; and
(2) Landlord, at Landlord's option, may relet the whole or any
portion or portions of the Premises from time to time, either in the name of
Landlord or otherwise, to such tenant or tenants, for such term or terms ending
before, on or after the Expiration Date, at such rental or rentals and upon such
other conditions, which may include concessions and free rent periods, as
Landlord, in its sole discretion, may determine; provided, however, that
Landlord shall have no obligation to relet the Premises or any part thereof and
shall in no event be liable for refusal or failure to relet the Premises or any
part thereof, or, in the event of any such reletting, for refusal or failure to
collect any rent due upon any such reletting, and no such refusal or failure
shall operate to relieve Tenant of any liability under this Lease or otherwise
affect any such liability, and Landlord, at Landlord's option, may make such
repairs, replacements, alterations, additions, improvements, decorations and
other physical changes in and to the Premises as Landlord, in its sole
discretion, considers advisable or necessary in connection with any such
reletting or proposed reletting, without relieving Tenant of any liability
under this Lease or otherwise affecting any such liability.
(B) Tenant hereby waives the service of any notice of intention to re-
enter or to institute legal proceedings to that end which may otherwise be
required to be given under any present or future law. Tenant, on its own behalf
and on behalf of all persons claiming through or under Tenant, including all
creditors, does further hereby waive any and all rights which Tenant and
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all such persons might otherwise have under any present or future law to redeem
the Premises, or to re-enter or repossess the Premises, or to restore the
operation of this Lease, after (a) Tenant shall have been dispossessed by a
judgment or by warrant of any court or judge, or (b) any re-entry by Landlord,
or (c) any expiration or termination of this Lease and the Term, whether such
dispossess, re-entry, expiration or termination shall be by operation of law or
pursuant to the provisions of this Lease. The words "re-enter," "re-entry" and
"re-entered" as used in this Lease shall not be deemed to be restricted to their
technical legal meanings. In the event of a breach or threatened breach by
Tenant, or any persons claiming through or under Tenant, of any term, covenant
or condition of this Lease, Landlord shall have the right to enjoin such breach
and the right to invoke any other remedy allowed by law or in equity as if re-
entry, summary proceedings and other special remedies were not provided in this
Lease for such breach. The right to invoke the remedies hereinbefore set forth
are cumulative and shall not preclude Landlord from invoking any other remedy
allowed at law or in equity.
Section 17.2. (A) If this Lease and the Term shall expire and come to an
end as provided in Article 16 hereof, or by or under any summary proceeding or
any other action or proceeding, or if Landlord shall re-enter the Premises as
provided in Section 17.1, or by or under any summary proceeding or any other
action or proceeding, then, in any of said events:
(1) Tenant shall pay to Landlord all Fixed Rent, Escalation Rent
and other items of Rental payable under this Lease by Tenant to Landlord to the
date upon which this Lease and the Term shall have expired and come to an end or
to the date of re-entry upon the Premises by Landlord, as the case may be;
(2) Tenant also shall be liable for and shall pay to Landlord, as
damages, any deficiency (referred to as "Deficiency") between the Rental for the
period which otherwise would have constituted the unexpired portion of the Term
and the net amount, if any, of rents collected under any reletting effected
pursuant to the provisions of clause (2) of Section 17.1(A) for any part of
such period (first deducting from the rents collected under any such reletting
all of Landlord's expenses in connection with the termination of this Lease,
Landlord's re-entry upon the Premises and with such reletting, including, but
not limited to, all repossession costs, brokerage commissions, legal expenses,
attorneys' fees and disbursements, alteration costs, contribution to work and
other expenses of preparing the Premises for such reletting); any such
Deficiency shall be paid in monthly installments by Tenant on the days
specified in this Lease for payment of installments of Fixed Rent; Landlord
shall be entitled to recover from Tenant each monthly Deficiency as the same
shall arise, and no suit to collect the amount of the Deficiency for any month
shall prejudice Landlord's right to collect the Deficiency for any subsequent
month by a similar proceeding; and
(3) whether or not Landlord shall have collected any monthly
Deficiency as aforesaid, Landlord shall be entitled to recover from Tenant, and
Tenant shall pay to Landlord, on demand, in lieu of any further Deficiency as
and for liquidated and agreed final damages, a sum equal to the amount by which
the Rental for the period which otherwise would have constituted the
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unexpired portion of the Term (commencing on the date immediately succeeding
the last date with respect to which a Deficiency, if any, was collected) exceeds
the then fair and reasonable rental value of the Premises for the same period,
both discounted to present worth at the Base Rate; if, before presentation of
proof of such liquidated damages to any court, commission or tribunal, the
Premises, or any part thereof, shall have been relet by Landlord for the period
which otherwise would have constituted the unexpired portion of the Term, or any
part thereof, the amount of rent reserved upon such reletting shall be deemed,
prima facie, to be the fair and reasonable rental value for the part or the
whole of the Premises so relet during the term of the reletting.
(B) If the Premises, or any part thereof, shall be relet together with
other space in the Building, the rents collected or reserved under any such
reletting and the expenses of any such reletting shall be equitably apportioned
for the purposes of this Section 17.2. Tenant shall in no event be entitled to
any rents collected or payable under any reletting, whether or not such rents
shall exceed the Fixed Rent reserved in this Lease. Solely for the purposes of
this Article 17, the term "Escalation Rent" as used in Section 17.2(A) shall
mean the Escalation Rent in effect immediately prior to the Expiration Date, or
the date of re-entry upon the Premises by Landlord, as the case may be, adjusted
to reflect any increase pursuant to the provisions of Article 27 hereof for the
Operating Year immediately preceding such event. Nothing contained in
Article 16 hereof or this Article 17 shall be deemed to limit or preclude the
recovery by Landlord from Tenant of the maximum amount allowed to be obtained as
damages by any statute or rule of law, or of any sums or damages to which
Landlord may be entitled in addition to the damages set forth in this Section
17.2.
ARTICLE 18
LANDLORD FEES AND EXPENSES
Section 18.1. If an Event of Default shall have occurred and be continuing,
Landlord may (1) as provided in Section 14.1 hereof, perform the same for the
account of Tenant, or (2) make any expenditure or incur any obligation for the
payment of money, including, without limitation, reasonable attorneys' fees and
disbursements in instituting, prosecuting or defending any action or proceeding,
and the cost thereof, with interest thereon at the Applicable Rate, shall be
deemed to be additional rent hereunder and shall be paid by Tenant to Landlord
within fifteen (15) Business Days of rendition of any bill or statement to
Tenant therefor and if the term of this Lease shall have expired at the time of
making of such expenditures or incurring of such obligations, such sums shall be
recoverable by Landlord as damages.
Section 18.2. If Tenant shall fail to pay any installment of Fixed Rent,
Escalation Rent or any other item of Rental within three (3) Business Days after
any of the same shall be due, Tenant shall pay to Landlord, in addition to such
installment of Fixed Rent, Escalation Rent or other item of Rental, as the case
may be, as a late charge and as additional rent, a sum equal to interest at the
Applicable Rate on the amount unpaid, computed from the date such payment was
due to and including the date of payment.
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ARTICLE 19
NO REPRESENTATIONS BY LANDLORD
------------------------------
Section 19.1. Landlord and Landlord's agents and representatives have made
no representations or promises with respect to the Building, the Real Property
or the Premises except as herein expressly set forth, and no rights, easements
or licenses are acquired by Tenant by implication or otherwise except as
expressly set forth herein. Tenant shall accept possession of the Premises in
the condition which shall exist on the Commencement Date "as is" (subject to the
provisions of Section 4.1 hereof), and Landlord shall have no obligation to
perform any work or make any installations in order to prepare the Premises for
Tenant's occupancy.
Section 19.2. (A) If Tenant during the performance of the Initial
Alterations shall uncover or discover any asbestos or asbestos-containing
materials (collectively, "ACM") in the Premises which are required by
Requirements to be abated by removal, enclosure or encapsulation then Landlord,
at its cost and expense, shall promptly commence and diligently proceed to abate
the same in accordance with all applicable Requirements, except that in no event
shall Landlord be required to remove, encapsulate or otherwise abate any ACM
which is contained in column enclosures. Upon the uncovering or discovery of any
such ACM, Tenant shall immediately vacate the Premises (or the affected portion,
if in the judgment of Landlord and Landlord's certified asbestos removal
contractor, it is possible for persons to safely remain in any other portion of
the Premises) and shall cause all of its contractors, subcontractors, mechanics,
materialmen, laborers and all other parties to do the same. Tenant shall have no
right to re-enter the Premises (or such affected portion) until all of such ACM
shall have been abated as aforesaid by Landlord in accordance with all
applicable Requirements.
(B) If Tenant shall discover ACM in the performance of its Initial
Alterations and Tenant shall actually be delayed in the performance and
completion of the Initial Alterations in the entire Premises by reason of its
discovery of ACM in the Premises, Tenant's vacating the entire Premises, and
Landlord's removing of such ACM as aforesaid, then the Rent Commencement Date
shall be postponed one day for each day Tenant is so delayed in the completion
of the Initial Alterations. If Tenant shall not be required to vacate the entire
Premises, but only a portion of the Premises and Tenant shall actually be
delayed in the performance and completion of the Initial Alterations with
respect to such portion of the Premises which Tenant is required to vacate, then
the Rent Commencement Date shall not be postponed, but rather, the Fixed Rent
and Escalation Rent appropriately prorated for such portion of the Premises
which Tenant is required to vacate shall be abated for a period equal to the
number of days for which Tenant is delayed in the performance and completion of
the Initial Alterations in such portion of the Premises.
ARTICLE 20
END OF TERM
-----------
Upon the expiration or other termination of this Lease, Tenant shall quit
and surrender to
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Landlord the Premises, vacant, broom clean, in good order and condition,
ordinary wear and tear and damage for which Tenant is not responsible under the
terms of this Lease excepted, and otherwise in compliance with the provisions of
Article 3 hereof. If the last day of the Term or any renewal thereof falls on
Saturday or Sunday, this Lease shall expire on the Business Day immediately
preceding. Tenant expressly waives, for itself and for any person claiming
through or under Tenant, any rights which Tenant or any such person may have
under the provisions of Section 2201 of the New York Civil Practice Law and
Rules and of any successor law of like import then in force in connection with
any holdover summary proceedings which Landlord may institute to enforce the
foregoing provisions of this Article 20. Tenant acknowledges that possession of
the Premises must be surrendered to Landlord on the Expiration Date. The parties
recognize and agree that the damage to Landlord resulting from any failure by
Tenant to timely surrender possession of the Premises as aforesaid will be
extremely substantial, will exceed the amount of the monthly installments of the
Fixed Rent and Rental theretofore payable hereunder, and will be impossible to
accurately measure. Tenant therefore agrees that if possession of the Premises
is not surrendered to Landlord within twenty-four (24) hours after the
Expiration Date, in addition to any other rights or remedies Landlord may have
hereunder or at law, and without in any manner limiting Landlord's right to
demonstrate and collect any damages suffered by Landlord and arising from
Tenant's failure to surrender the Premises as provided herein, Tenant shall pay
to Landlord on account of use and occupancy of the Premises for each month and
for each portion of any month during which Tenant holds over in the Premises
after the Expiration Date, a sum equal to the greater of (i) two (2) times the
aggregate of that portion of the Fixed Rent, Escalation Rent and Rental which
was payable under this Lease during the last month of the Term, and (ii) the
then fair market rental value for the Premises. Nothing herein contained shall
be deemed to permit Tenant to retain possession of the Premises after the
Expiration Date or to limit in any manner Landlord's right to regain possession
of the Premises through summary proceedings, or otherwise, and no acceptance by
Landlord of payments from Tenant after the Expiration Date shall be deemed to be
other than on account of the amount to be paid by Tenant in accordance with the
provisions of this Article 20. The provisions of this Article 20 shall survive
the Expiration Date.
ARTICLE 21
QUIET ENJOYMENT
---------------
Provided no Event of Default has occurred and is continuing, Tenant may
peaceably and quietly enjoy the Premises subject, nevertheless, to the terms and
conditions of this Lease.
ARTICLE 22
FAILURE TO GIVE POSSESSION
--------------------------
Tenant waives any right to rescind this Lease under Section 223-a of the
New York Real Property Law or any successor statute of similar nature and
purpose then in force and further waives the right to recover any damages which
may result from Landlord's failure for any reason to deliver
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possession of the Premises on the date set forth in Section 1.1 hereof for the
commencement of the Term. The provisions of this Article are intended to
constitute an "express provision to the contrary" within the meaning of Section
223-a of the New York Real Property Law. No such failure to give possession on
the date set forth in Section 1.1 hereof for the commencement of the Term shall
in any wise affect the validity of this Lease or the obligations of Tenant
hereunder or give rise to any claim for damages by Tenant or claim for
rescission of this Lease, nor shall the same be construed in any wise to extend
the Term.
ARTICLE 23
NO WAIVER
---------
Section 23.1. No act or thing done by Landlord or Landlord's agents during
the Term shall be deemed an acceptance of a surrender of the Premises, and no
agreement to accept such surrender shall be valid unless in writing signed by
Landlord. No employee of Landlord or of Landlord's agents shall have any power
to accept the keys of the Premises prior to the termination of this Lease. The
delivery of keys to any employee of Landlord or of Landlord's agents shall not
operate as a termination of this Lease or a surrender of the Premises. In the
event Tenant at any time desires to have Landlord sublet the Premises for
Tenant's account, Landlord or Landlord's agents are authorized to receive said
keys for such purpose without releasing Tenant from any of the obligations under
this Lease, and Tenant hereby relieves Landlord of any liability for loss of or
damage to any of Tenant's effects in connection with such subletting.
Section 23.2. The failure of Landlord to seek redress for violation of, or
to insist upon the strict performance of, any covenant or condition of this
Lease, or any of the Rules and Regulations set forth or hereafter adopted by
Landlord, shall not prevent a subsequent act, which would have originally
constituted a violation of the provisions of this Lease, from having all of the
force and effect of an original violation of the provisions of this Lease. The
receipt by Landlord of Fixed Rent, Escalation Rent or any other item of Rental
with knowledge of the breach of any covenant of this Lease shall not be deemed a
waiver of such breach. The failure of Landlord to enforce any of the Rules and
Regulations set forth, or hereafter adopted, against Tenant or any other tenant
in the Building shall not be deemed a waiver of any such Rules and Regulations.
No provision of this Lease shall be deemed to have been waived by Landlord,
unless such waiver be in writing signed by Landlord. No payment by Tenant or
receipt by Landlord of a lesser amount than the monthly Fixed Rent or other item
of Rental herein stipulated shall be deemed to be other than on account of the
earliest stipulated Fixed Rent or other item of Rental, or as Landlord may elect
to apply same, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment as Fixed Rent or other item of Rental be
deemed an accord and satisfaction, and Landlord may accept such check or payment
without prejudice to Landlord's right to recover the balance of such Fixed Rent
or other item of Rental or to pursue any other remedy provided in this Lease.
This Lease contains the entire agreement between the parties and all prior
negotiations and agreements are merged herein. Any executory agreement hereafter
made shall be ineffective to change, modify, discharge or effect an abandonment
of this Lease in whole or in part unless such executory
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agreement is in writing and signed by the party against whom enforcement of the
change, modification, discharge or abandonment is sought.
Section 23.3. The failure of Tenant to seek redress for violation of, or to
insist upon the strict performance of, any covenant or condition of this Lease
on Landlord's part to be performed, shall not be deemed a waiver of such breach
or prevent a subsequent act which would have originally constituted a violation
of the provisions of this Lease from having all of the force and effect of an
original violation of the provisions of this Lease. The payment by Tenant of
Fixed Rent, Escalation Rent or any other item of Rental or performance of any
obligation of Tenant hereunder with knowledge of any breach of any covenant of
this Lease shall not be deemed a waiver of such breach, and payment of the same
by Tenant shall be without prejudice to Tenant's right to pursue any remedy
against Landlord in this Lease provided.
ARTICLE 24
WAIVER OF TRIAL BY JURY
-----------------------
The respective parties hereto shall and they hereby do waive trial by jury
in any action, proceeding or counterclaim brought by either of the parties
hereto against the other (except for personal injury or property damage) on any
matters whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises,
or for the enforcement of any remedy under any statute, emergency or otherwise.
If Landlord commences any summary proceeding against Tenant, Tenant will not
interpose any counterclaim of whatever nature or description in any such
proceeding (unless failure to impose such counterclaim would preclude Tenant
from asserting in a separate action the claim which is the subject of such
counterclaim), and will not seek to consolidate such proceeding with any other
action which may have been or will be brought in any other court by Tenant.
ARTICLE 25
INABILITY TO PERFORM
--------------------
This Lease and the obligation of Tenant to pay Rental hereunder and
perform all of the other covenants and agreements hereunder on the part of
Tenant to be performed shall in no wise be affected, impaired or excused because
Landlord is unable to fulfill any of its obligations under this Lease expressly
or impliedly to be performed by Landlord or because Landlord is unable to make,
or is delayed in making any repairs, additions, alterations, improvements or
decorations or is unable to supply or is delayed in supplying any equipment or
fixtures, if Landlord is prevented or delayed from so doing by reason of strikes
or labor troubles or by accident, or by any cause whatsoever beyond Landlord's
control, including, but not limited to, laws, governmental preemption in
connection with a national emergency or by reason of any Requirements of any
Governmental Authority or by reason of failure of the HVAC, electrical,
plumbing, or other Building Systems in the Building, or by reason of the
conditions of supply and demand which have been or are affected
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by war or other emergency ("Unavoidable Delays").
ARTICLE 26
BILLS AND NOTICES
-----------------
Except as otherwise expressly provided in this Lease, any bills,
statements, consents, notices, demands, requests or other communications given
or required to be given under this Lease shall be in writing and shall be deemed
sufficiently given or rendered if delivered by hand (against a signed receipt)
or if sent by registered or certified mail (return receipt requested) addressed
if to Tenant (a) at Focal Communications Corp., 200 North LaSalle,
Chicago, Illinois 60601, Attn.: Director of Real Estate, and (b) at
Focal Communications Corp., 200 North LaSalle, Chicago, Illinois
60601, Attn.: Executive Vice President, or (c) at any place where
Tenant or any agent or employee of Tenant may be found if mailed
subsequent to Tenant's vacating, deserting, abandoning or surrendering
the Premises, in each case with a copy to Jones, Day, Reavis & Pogue,
599 Lexington Avenue, New York, New York 10022, Attn.: Robert J.
Shansky, Esq., or
if to Landlord at Landlord's address set forth in this Lease, Attn.:
Mr. Kevin R. Wang, and with copies to (y) Proskauer Rose LLP, 1585
Broadway, New York, New York 10036, Attn.: Lawrence J. Lipson, Esq.,
and (z) each Mortgagee and Lessor which shall have requested same, by
notice given in accordance with the provisions of this Article 26 at
the address designated by such Mortgagee or Lessor, or
to such other address(es) as Landlord, Tenant or any Mortgagee or Lessor may
designate as its new address(es) for such purpose by notice given to the other
in accordance with the provisions of this Article 26. Any such bill, statement,
consent, notice, demand, request or other communication shall be deemed to have
been rendered or given on the date when it shall have been hand delivered or
three (3) Business Days from when it shall have been mailed as provided in this
Article 26. Anything contained herein to the contrary notwithstanding, any
Operating Statement, Tax Statement or any other bill, statement, consent,
notice, demand, request or other communication from Landlord to Tenant with
respect to any item of Rental (other than any "default notice" if required
hereunder) may be sent to Tenant by regular United States mail.
ARTICLE 27
ESCALATION
----------
Section 27.1. For the purposes of this Article 27, the following terms
shall have the
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meanings set forth below.
(A) "Assessed Valuation" shall mean the amount for which the Real
Property is assessed pursuant to applicable provisions of the New York City
Charter and of the Administrative Code of the City of New York for the purpose
of calculating all or any portion of the Taxes payable with respect to the Real
Property.
(B) "Base Operating Expenses" shall mean the Operating Expenses for
the Base Operating Year.
(C) "Base Operating Year" shall mean the calendar year ending December
31, 1998.
(D) "Base Taxes" shall mean the Taxes for the Tax Year commencing July
1, 1998 and ending June 30, 1999.
(E) (1) "Operating Expenses" shall mean the aggregate of those costs
and expenses (and taxes, if any, thereon, including without limitation, sales
and value added taxes) paid or incurred by or on behalf of Landlord (whether
directly or through independent contractors) in respect of the Operation of the
Property which, are properly chargeable to the Operation of the Property
together with and including (without limitation) the costs of gas, oil, steam,
water, sewer rental, electricity (for the portions of the Real Property not
leased to and occupied by tenants or available for occupancy), HVAC and other
utilities furnished to the Building and utility taxes, and the expenses incurred
in connection with the Operation of the Property such as insurance premiums,
attorneys' fees and disbursements, auditing and other professional fees and
expenses, and all reasonable expenses (including attorneys' fees and
disbursements, experts' and other witnesses' fees) incurred in contesting the
validity or amount of any Taxes or in obtaining a refund of any Taxes, but
specifically excluding:
(i) Taxes,
(ii) franchise or income taxes imposed upon Landlord,
(iii) debt service on Mortgages,
(iv) leasing commissions,
(v) capital improvements (except as otherwise provided
herein),
(vi) the cost of electrical energy furnished directly to
Tenant and other tenants of the Building,
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(vii) the cost of tenant installations incurred in
connection with preparing space for a new tenant,
(viii) salaries and fringe benefits of personnel above the
grade of building manager and such building manager's supervisor,
(ix) rent paid under Superior Leases (other than in the
nature of Rent consisting of Taxes or Operating Expenses),
(x) any expense for which Landlord is otherwise compensated
through the proceeds of insurance or is otherwise compensated by any tenant
(including Tenant) of the Building for services in excess of the services
Landlord is obligated to furnish to Tenant hereunder,
(xi) legal fees incurred in connection with any negotiation
of, or disputes arising out of, any space lease in the Building,
(xii) depreciation, except as provided herein,
(xiii) Landlord's advertising and promotional costs for the
Building,
(xiv) lease takeover costs incurred by Landlord in
connection with the entering into space leases in the Building and costs
incurred by Landlord to relocate tenants in the Building in order to consummate
a specific space lease or to accommodate a specific tenant's request,
(xv) interest, fines, penalties and late charges incurred by
Landlord for late payment, except to the extent the same shall be due to the act
or omission of Tenant, and
(xvi) the cost of any judgment, settlement or arbitration
award resulting from any liability of Landlord,
except, however, that if Landlord is not furnishing any particular work or
service (the cost of which if performed by Landlord would constitute an
Operating Expense) to a tenant who has undertaken to perform such work or
service in lieu of the performance thereof by Landlord, Operating Expenses shall
be deemed to be increased by an amount equal to the additional Operating
Expenses which reasonably would have been incurred during such period by
Landlord if it had at its own expense furnished such work or services to such
tenant. Any insurance proceeds received with respect to any item previously
included as an Operating Expense shall be deducted from Operating Expenses for
the Operating Year in which such proceeds are received; provided, however, to
the extent any insurance proceeds are received by Landlord in any Operating
Year with respect to any item which
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was included in Operating Expenses during the Base Operating Year, the amount of
insurance proceeds so received shall be deducted from Base Operating Expenses
and (x) the Base Operating Expenses shall be retroactively adjusted to reflect
such deduction and (y) all retroactive Operating Payments resulting from such
retroactive adjustment shall be due and payable when billed by Landlord. Until
such time as the electricity supplied to each floor of the Building and the
common and public areas of the Building (including, without limitation, the
Building Systems) shall be separately metered or submetered, Operating Expenses
shall include an amount equal to (x) (i) Landlord's cost (utilizing the
electrical rates applicable to the Building including energy charges, demand
charges, time-of-day charges, fuel adjustment charges, rate adjustment charges,
sales tax and any other factors used by the public utility in computing its
charges to Landlord) of furnishing electric current to the entire Building,
multiplied by (ii) the number of kilowatt hours of electric current furnished to
the public and common areas of the Building (including, without limitation, the
Building Systems) and other areas not available for occupancy as determined by a
survey prepared by an independent, reputable electrical engineer selected by
Landlord, plus (y) an amount equal to Landlord's out-of-pocket costs in
connection with the same.
(2) In determining the amount of Operating Expenses for any
Operating Year, if less than all of the Building rentable area shall have been
occupied by tenant(s) at any time during any such Operating Year, Operating
Expenses shall be determined for such Operating Year to be an amount equal to
the like expenses which would normally be expected to be incurred had all such
areas been occupied throughout such Operating Year.
(3) (a) If any capital improvement is made during any Operating
Year in compliance with a Requirement, whether or not such Requirement is valid
or mandatory, or in lieu of a repair, then the cost of such improvement shall be
included in Operating Expenses for the Operating Year in which such improvement
was made; provided, however, to the extent the cost of such improvement is
required to be capitalized for federal income tax purposes, such cost shall be
amortized over the useful economic life of such improvement as reasonably
estimated by Landlord, and the annual amortization, together with interest
thereon at the then Base Rate, of such improvement shall be deemed an Operating
Expense in each of the Operating Years during which such cost of the improvement
is amortized.
(b) If any capital improvement is made during any Operating
Year either for the purpose of saving or reducing Operating Expenses (as, for
example, a labor-saving improvement), then the cost of such improvement shall be
included in Operating Expenses for the Operating Year in which such improvement
was made; provided, however, such cost shall be amortized over such period of
time as Landlord reasonably estimates such savings or reduction in Operating
Expenses will equal the cost of such improvement and the annual amortization,
together with interest thereon at the then Base Rate, of such improvement shall
be deemed an Operating Expense in each of the Operating Years during which such
cost of the improvement is amortized; provided, further, however, the amortized
cost of such improvement included in any Operating Year shall not exceed the
amount which Tenant would have paid had such improvement not been made. Any
portion of the amortized cost of any such capital improvement which may not be
included in
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Operating Expenses in an Operating Year by reason of the foregoing limitation
may be included in Operating Expenses for subsequent Operating Years (subject to
such limitation).
(F) "Operating Statement" shall mean a statement in reasonable detail
setting forth a comparison of the Operating Expenses for an Operating Year with
the Base Operating Expenses and the Escalation Rent for the preceding Operating
Year pursuant to the provisions of this Article 27.
(G) "Operating Year" shall mean the calendar year within which the
Commencement Date occurs and each subsequent calendar year for any part or all
of which Escalation Rent shall be payable pursuant to this Article 27.
(H) "Taxes" shall mean the aggregate amount of real estate taxes and
any general or special assessments (exclusive of penalties and interest thereon)
imposed upon the Real Property (including, without limitation, (i) assessments
made upon or with respect to any "air" and "development" rights now or hereafter
appurtenant to or affecting the Real Property, (ii) any fee, tax or charge
imposed by any Governmental Authority for any vaults, vault space or other space
within or outside the boundaries of the Real Property, and (iii) any taxes or
assessments levied after the date of this Lease in whole or in part for public
benefits to the Real Property or the Building, including, without limitation,
any Business Improvement District taxes and assessments) without taking into
account any discount that Landlord may receive by virtue of any early payment of
Taxes; provided, that if because of any change in the taxation of real estate,
any other tax or assessment, however denominated (including, without limitation,
any franchise, income, profit, sales, use, occupancy, gross receipts or rental
tax) is imposed upon Landlord or the owner of the Real Property or the Building,
or the occupancy, rents or income therefrom, in substitution for any of the
foregoing Taxes, such other tax or assessment shall be deemed part of Taxes
computed as if Landlord's sole asset were the Real Property. Anything contained
herein to the contrary notwithstanding, Taxes shall not be deemed to include (w)
any taxes on Landlord's income, (x) franchise taxes, (y) estate or inheritance
taxes or (z) any similar taxes imposed on Landlord, unless such taxes are
levied, assessed or imposed in lieu of or as a substitute for the whole or any
part of the taxes, assessments, levies, impositions which now constitute Taxes.
(I) "Tax Statement" shall mean a statement in reasonable detail
setting forth a comparison of the Taxes for a Tax Year with the Base Taxes.
(J) "Tax Year" shall mean the period July 1 through June 30 (or such
other period as hereinafter may be duly adopted by the Governmental Authority
then imposing taxes as its fiscal year for real estate tax purposes), any
portion of which occurs during the Term.
Section 27.2. (A) If the Taxes payable for any Tax Year (any part or all of
which falls within the Term) shall represent an increase above the Base Taxes,
then Tenant shall pay as additional rent for such Tax Year and continuing
thereafter until a new Tax Statement is rendered to Tenant, Tenant's Tax Share
of such increase (the "Tax Payment") as shown on the Tax Statement with
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respect to such Tax Year. Tenant shall be obliged to pay the Tax Payment
regardless of whether Tenant is exempt in whole or part, from the payment of any
Taxes by reason of Tenant's diplomatic status or for any other reason
whatsoever. The Taxes shall be computed initially on the basis of the Assessed
Valuation in effect at the time the Tax Statement is rendered (as the Taxes may
have been settled or finally adjudicated prior to such time) regardless of any
then pending application, proceeding or appeal respecting the reduction of any
such Assessed Valuation, but shall be subject to subsequent adjustment as
provided in Section 27.3 hereof.
(B) At any time during or after the Term, Landlord may render to
Tenant a Tax Statement or Statements showing (i) a comparison of the Taxes for
the Tax Year with the Base Taxes and (ii) the amount of the Tax Payment
resulting from such comparison. On the first day of the month following the
furnishing to Tenant of a Tax Statement, Tenant shall pay to Landlord a sum
equal to 1/12th of the Tax Payment shown thereon to be due for such Tax Year
multiplied by the number of months of the Term then elapsed since the
commencement of such Tax Year. Tenant shall continue to pay to Landlord a sum
equal to one-twelfth (1/12th) of the Tax Payment shown on such Tax Statement on
the first day of each succeeding month until the first day of the month
following the month in which Landlord shall deliver Tenant a new Tax Statement.
If Landlord furnishes a Tax Statement for a new Tax Year subsequent to the
commencement thereof, promptly after the new Tax Statement is furnished to
Tenant, Landlord shall give notice to Tenant stating whether the amount
previously paid by Tenant to Landlord for the current Tax Year was greater or
less than the installments of the Tax Payment for the current tax year in
accordance with the Tax Statement, and (a) if there shall be a deficiency,
Tenant shall pay the amount thereof within ten (10) days after demand therefor,
or (b) if there shall have been an overpayment, Landlord shall credit the amount
thereof against the next monthly installments of the Fixed Rent payable under
this Lease. Tax Payments shall be collectible by Landlord in the same manner as
Fixed Rent. Landlord's failure to render a Tax Statement shall not prejudice
Landlord's right to render a Tax Statement during or with respect to any
subsequent Tax Year, and shall not eliminate or reduce Tenant's obligation to
make Tax Payments for such Tax Year. Notwithstanding anything to the contrary
contained in this Article 27, Landlord shall be deemed to have waived its right
to collect the Tax Payment for a Tax Year if Landlord shall have failed to
deliver the Tax Statement with respect to such Tax Year by the date which is two
(2) years after the later to occur of (x) the date on which Landlord shall have
received the appropriate bill from the Governmental Authority, and (y) the date
which is the last day of the Tax Year in question.
Section 27.3. (A) Only Landlord shall be eligible to institute tax
reduction or other proceedings to reduce the Assessed Valuation. In the event
that, after a Tax Statement has been sent to Tenant, an Assessed Valuation which
had been utilized in computing the Taxes for a Tax Year is reduced (as a result
of settlement, final determination of legal proceedings or otherwise), and as a
result thereof a refund of Taxes is actually received by or on behalf of
Landlord, then, promptly after receipt of such refund, Landlord shall send
Tenant a Tax Statement adjusting the Taxes for such Tax Year and setting forth
Tenant's Tax Share of such refund and Tenant shall be entitled to receive such
Share, at Landlord's option, either by way of a credit against the Fixed Rent
next becoming due after the sending of such Tax Statement or by a refund to the
extent no further Fixed Rent is due;
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provided, however, that Tenant's Tax Share of such refund shall be limited to
the portion of the Tax Payment, if any, which Tenant had theretofore paid to
Landlord attributable to increases in Taxes for the Tax Year to which the refund
is applicable on the basis of the Assessed Valuation before it had been reduced.
(B) In the event that, after a Tax Statement has been sent to Tenant,
the Assessed Valuation which had been utilized in computing the Base Taxes is
reduced (as a result of settlement, final determination of legal proceedings or
otherwise) then, and in such event: (i) the Base Taxes shall be retroactively
adjusted to reflect such reduction, and (ii) all retroactive Tax Payments
resulting from such retroactive adjustment shall be due and payable when billed
by Landlord. Landlord promptly shall send to Tenant a statement setting forth
the basis for such retroactive adjustment and Tax Payments.
Section 27.4. (A) If the Operating Expenses for any Operating Year (any
part or all of which falls within the Term) shall be greater than the Base
Operating Expenses, then Tenant shall pay as additional rent for such Operating
Year and continuing thereafter until a new Operating Statement is rendered to
Tenant, Tenant's Share of such increase (the "Operating Payment") as hereinafter
provided.
(B) At any time during or after the Term Landlord may render to Tenant
an Operating Statement or Statements showing (i) a comparison of the Operating
Expenses for the Operating Year in question with the Base Operating Expenses,
and (ii) the amount of the Operating Payment resulting from such comparison.
Landlord's failure to render an Operating Statement during or with respect to
any Operating Year in question shall not prejudice Landlord's right to render an
Operating Statement during or with respect to any subsequent Operating Year, and
shall not eliminate or reduce Tenant's obligation to make payments of the
Operating Payment pursuant to this Article 27 for such Operating Year.
(C) On the first day of the month following the furnishing to Tenant
of an Operating Statement, Tenant shall pay to Landlord a sum equal to 1/12th of
the Operating Payment shown thereon to be due for the preceding Operating Year
multiplied by the number of months (and any fraction thereof) of the Term then
elapsed since the commencement of such Operating Year in which such Operating
Statement is delivered, less Operating Payments theretofore made by Tenant for
such Operating Year and thereafter, commencing with the then current monthly
installment of Fixed Rent and continuing monthly thereafter until rendition of
the next succeeding Operating Statement. Tenant shall pay on account of the
Operating Payment for such Year an amount equal to 1/12th of the Operating
Payment shown thereon to be due for the preceding Operating Year. Any Operating
Payment shall be collectible by Landlord in the same manner as Fixed Rent.
Nothwithstanding anything to the contrary contained in this Article 27, Landlord
shall be deemed to have waived its right to collect the Operating Payment for an
Operating Year if Landlord shall have failed to deliver the Operating Statement
with respect to such Operating Year by the date which is two (2) years after the
last day of the Operating Year in question.
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(D) (1) As used in this Section 27.4, (i) "Tentative Monthly
Escalation Charge" shall mean a sum equal to 1/12th of the product of (a)
Tenant's Share, and (b) the difference between (x) the Base Operating Expenses
and (y) Landlord's estimate of Operating Expenses for the Current Year, and (ii)
"Current Year" shall mean the Operating Year in which a demand is made upon
Tenant for payment of a Tentative Monthly Escalation Charge.
(2) At any time in any Operating Year, Landlord, at its option,
in lieu of the payments required under Section 27.4(C) hereof, may demand and
collect from Tenant, as additional rent, a sum equal to the Tentative Monthly
Escalation Charge multiplied by the number of months in said Operating Year
preceding the demand and reduced by the sum of all payments theretofore made
under Section 27.4(C) with respect to said Operating Year, and thereafter,
commencing with the month in which the demand is made and continuing thereafter
for each month remaining in said Operating Year, the monthly installments of
Fixed Rent shall be deemed increased by the Tentative Monthly Escalation Charge.
Any amount due to Landlord under this Section 27.4(D) may be included by
Landlord in any Operating Statement rendered to Tenant as provided in Section
27.4(B) hereof.
(E) (1) After the end of the Current Year and at any time that
Landlord renders an Operating Statement or Statements to Tenant as provided in
Section 27.4(B) hereof with respect to the comparison of the Operating Expenses
for said Operating Year or Current Year, with the Base Operating Expenses, as
the case may be, the amounts, if any, collected by Landlord from Tenant under
Section 27.4(C) or (D) on account of the Operating Payment or the Tentative
Monthly Escalation Charge, as the case may be, shall be adjusted, and, if the
amount so collected is less than or exceeds the amount actually due under said
Operating Statement for the Operating Year, a reconciliation shall be made as
follows: Tenant shall be debited with any Operating Payment shown on such
Operating Statement and credited with the amounts, if any, paid by Tenant on
account in accordance with the provisions of subsection (C) and subsection
(D)(2) of this Section 27.4 for the Operating Year in question. Tenant shall pay
any net debit balance to Landlord within fifteen (15) days next following
rendition by Landlord of an invoice for such net debit balance; any net credit
balance shall be applied against the next accruing monthly installments of Fixed
Rent.
(2) If the sum of the Tentative Monthly Escalation Charges and
payments made by Tenant in accordance with subsection (C) of this Section 27.4
for any Operating Year shall have exceeded the Operating Payment for such
Operating Year by more than ten percent (10%), interest at the Applicable Rate
on the portion of the overpayment that exceeds the applicable Operating Payment
by more than ten percent (10%) determined as of the respective dates of such
payments by Tenant and calculated from such respective dates to the dates on
which such amounts are credited against the monthly installments of Fixed Rent,
shall be so credited. Any amount owing to Tenant subsequent to the Term shall be
paid to Tenant within ten (10) Business Days after a final determination has
been made of the amount due to Tenant.
Section 27.5. Any Operating Statement sent to Tenant shall be conclusively
binding upon Tenant unless, within one hundred eighty (180) days after such
Statement is sent, Tenant shall send
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a written notice to Landlord objecting to such Statement and specifying the
respects in which such Statement is disputed. If such notice is sent, Tenant
(together with its independent certified public accountants, provided such
accountants are approved by Landlord, with such approval not to be unreasonably
withheld or delayed) may examine Landlord's books and records relating to the
Operation of the Property to determine the accuracy of the Operating Statement.
Tenant recognizes the confidential nature of such books and records and agrees
to maintain the information obtained from such examination in strict confidence.
If after such examination, Tenant still disputes such Operating Statement,
either party may refer the decision of the issues raised to a reputable
independent firm of certified public accountants, selected by Landlord and
approved by Tenant, which approval shall not be unreasonably withheld or delayed
as long as such firm of certified public accountants is one of the so-called
"big-six" public accounting firms or if at such time there is no group of
accounting firms commonly referred to as "big-six", then a nationally recognized
firm of at least one hundred fifty (150) partners or principals who are
certified public accountants, and the decision of such accountants shall be
conclusively binding upon the parties. The fees and expenses involved in such
decision shall be borne by the unsuccessful party (and if both parties are
partially successful, such fees and expenses shall be apportioned between
Landlord and Tenant in inverse proportion to the amount by which such decision
is favorable to each party). Notwithstanding the giving of such notice by
Tenant, and pending the resolution of any such dispute, Tenant shall pay to
Landlord when due the amount shown on any such Operating Statement, as provided
in Section 27.4 hereof.
Section 27.6. Except as expressly provided herein, the expiration or
termination of this Lease during any Operating Year or Tax Year shall not affect
the rights or obligations of the parties hereto respecting any payments of
Operating Payments for such Operating Year and any payments of Tax Payments for
such Tax Year, and any Operating Statement relating to such Operating Payment
and any Tax Statement relating to such Tax Payment, may be sent to Tenant
subsequent to, and all such rights and obligations shall survive, any such
expiration or termination. In determining the amount of the Operating Payment
for the Operating Year or the Tax Payment for the Tax Year in which the Term
shall expire, the payment of the Operating Payment for such Operating Year or
the Tax Payment for the Tax Year shall be prorated based on the number of days
of the Term which fall within such Operating Year or Tax Year, as the case may
be. Any payments due under such Operating Statement or Tax Statement shall be
payable within fifteen (15) Business Days after such Statement is sent to
Tenant.
ARTICLE 28
SERVICES
--------
Section 28.1. (A) Landlord shall provide passenger elevator service to the
Premises on Business Days from 8:00 A.M. to 6:00 P.M. and have an elevator
subject to call at all other times. Subject to Landlord's reasonable security
procedures and rules, Landlord shall provide access to the Building and the
Premises twenty-four (24) hours per day, three hundred sixty-five (365) days per
year.
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(B) There shall be one (1) freight elevator serving the Premises and
the entire Building on call on a "first come, first served" basis on Business
Days from 8:00 A.M. 12:00 P.M. and from 2:00 P.M. to 5:00 P.M., and on a
reservation, "first come, first served" basis from 12:00 P.M. to 2:00 P.M. and
5:00 P.M. to 8:00 A.M. on Business Days and at any time on days other than
Business Days. If Tenant shall use the freight elevators serving the Premises
between 12:00 P.M. to 2:00 P.M. and 5:00 P.M. and 8:00 A.M. on Business Days or
at any time on any other days, Tenant shall pay Landlord, as additional rent for
such use, the standard rates then fixed by Landlord for the Building, or if no
such rates are then fixed, at reasonable rates.
(C) Landlord shall not be required to furnish any freight elevator
services during the hours from 12:00 P.M. to 2:00 P.M. and 5:00 P.M. to 8:00
A.M. on Business Days and at any time on days other than Business Days unless
Landlord has received advance notice from Tenant requesting such services prior
to 2:00 P.M. of the day upon which such service is requested or by 2:00 P.M. of
the last preceding Business Day if such periods are to occur on a day other than
a Business Day.
Section 28.2. Landlord, at Landlord's expense (but subject to recoupment
pursuant to Article 27 hereof), shall furnish to the perimeter of the Premises
(for distribution by Tenant within the Premises) through the HVAC System, when
required for the comfortable occupancy of the Premises, HVAC in accordance with
the specifications set forth on Exhibit "C" annexed hereto and made a part
hereof, on a year round basis from 8:00 A.M. to 6:00 P.M. on Business Days.
Landlord, throughout the Term, shall have free access to any and all mechanical
installations of Landlord, including, but not limited to, air-cooling, fan,
ventilating and machine rooms and electrical closets; Tenant shall not construct
partitions or other obstructions which may interfere with Landlord's free access
thereto, or interfere with the moving of Landlord's equipment to and from the
enclosures containing said installations. Neither Tenant, nor its agents,
employees or contractors shall at any time enter the said enclosures or tamper
with, adjust or touch or otherwise in any manner affect said mechanical
installations. Tenant shall draw and close the draperies or blinds for the
windows of the Premises whenever the HVAC System is in operation and the
position of the sun so requires and shall at all times cooperate fully with
Landlord and abide by all of the reasonable regulations and requirements which
Landlord may prescribe for the proper functioning and protection of the HVAC
System.
Section 28.3. The Fixed Rent does not reflect or include any charge to
Tenant for the furnishing of any necessary HVAC to the Premises during periods
other than the hours and days set forth above ("Overtime Periods"). Accordingly,
if Landlord shall furnish such HVAC to the Premises at the request of Tenant
during Overtime Periods, Tenant shall pay Landlord additional rent for such
services at the standard rates then fixed by Landlord for the Building, or if no
such rates are then fixed, at reasonable rates. Landlord shall not be required
to furnish any such services during any Overtime Periods unless Landlord has
received advance notice from Tenant requesting such services prior to 2:00 P.M.
of the day upon which such services are requested or by 2:00 P.M. of the last
preceding Business Day if such Overtime Periods are to occur on a day other than
a Business Day. If Tenant fails to give Landlord such advance notice, then,
failure by Landlord to furnish or
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distribute any such services during such Overtime Periods shall not constitute
an actual or constructive eviction, in whole or in part, or entitle Tenant to
any abatement or diminution of Rental, or relieve Tenant from any of its
obligations under this Lease, or impose any liability upon Landlord or its
agents by reason of inconvenience or annoyance to Tenant, or injury to or
interruption of Tenant's business or otherwise. If more than one tenant
utilizing the same system as Tenant requests the same Overtime Periods for the
same services as Tenant, the charge to Tenant shall be adjusted pro rata.
Section 28.4. Provided Tenant shall keep the Premises in order, Landlord,
at Landlord's expense, subject to recoupment pursuant to Article 27 hereof,
shall cause the Premises, excluding any portions thereof used for the storage,
preparation, service or consumption of food or beverages, to be cleaned,
substantially in accordance with the standards set forth in Schedule B annexed
hereto and made a part hereof. Tenant shall pay to Landlord the cost of removal
of any of Tenant's refuse and rubbish from the Premises and the Building to the
extent that the same exceeds the refuse and rubbish usually attendant upon the
use of such Premises as offices. Bills for the same shall be rendered by
Landlord to Tenant at such time as Landlord may elect and shall be due and
payable when rendered as additional rent. Tenant, at Tenant's sole cost and
expense, shall cause all portions of the Premises used for the storage,
preparation, service or consumption of food or beverages to be cleaned daily in
a manner satisfactory to Landlord, and to be exterminated against infestation by
vermin, rodents or roaches regularly and, in addition, whenever there shall be
evidence of any infestation. Any such exterminating shall be done at Tenant's
sole cost and expense, in a manner satisfactory to Landlord, and by Persons
approved by Landlord. If Tenant shall perform any cleaning services in addition
to the services provided by Landlord as aforesaid, Tenant shall employ the
cleaning contractor providing cleaning services to the Building on behalf of
Landlord or such other cleaning contractor as shall be approved by Landlord.
Tenant shall comply with any recycling program and/or refuse disposal program
(including, without limitation, any program related to the recycling, separation
or other disposal of paper, glass or metals) which Landlord shall impose or
which shall be required pursuant to any Requirements.
Section 28.5. If the New York Board of Fire Underwriters or the Insurance
Services Office or any Governmental Authority, department or official of the
state or city government shall require or recommend that any changes,
modifications, alterations or additional sprinkler heads or other equipment be
made or supplied by reason of Tenant's business, or the location of the
partitions, trade fixtures, or other contents of the Premises, Landlord, at
Tenant's cost and expense, shall promptly make and supply such changes,
modifications, alterations, additional sprinkler heads or other equipment.
Section 28.6. Landlord reserves the right to stop service of the HVAC
System or the elevator, electrical, plumbing or other Building Systems when
necessary, by reason of accident or emergency, or for repairs, additions,
alterations, replacements or improvements in the judgment of Landlord desirable
or necessary to be made, until said repairs, alterations, replacements or
improvements shall have been completed (which repairs, additions, alterations,
replacements and improvements shall be performed in accordance with Section 4.3
hereof). Landlord shall have no
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responsibility or liability for interruption, curtailment or failure to supply
HVAC, elevator, electrical, plumbing or other Building Systems when prevented by
Unavoidable Delays or by any Requirement of any Governmental Authority or due to
the exercise of its right to stop service as provided in this Article 28 and the
exercise of such right or such failure by Landlord shall not constitute an
actual or constructive eviction, in whole or in part, or entitle Tenant to any
compensation or to any abatement or diminution of Rental, or relieve Tenant from
any of its obligations under this Lease, or impose any liability upon Landlord
or its agents by reason of inconvenience or annoyance to Tenant, or injury to or
interruption of Tenant's business, or otherwise.
Section 28.7. Landlord shall make available to Tenant the computerized
directory in the lobby of the Building for up to ten (10) listings. The initial
programming shall be without charge to Tenant. From time to time, but not more
frequently than once every three (3) months, Landlord shall reprogram the
computerized directory to reflect such changes in the listings therein as Tenant
shall request, and Tenant promptly after request shall pay to Landlord a
reasonable reprogramming charge for each reprogramming Tenant requests. If
Landlord replaces the computerized directory with a standard directory in the
lobby of the Building, Tenant shall be entitled to Tenant's Share of such
listings on such directory.
ARTICLE 29
PARTNERSHIP TENANT
------------------
If Tenant is a partnership (including, without limitation, a limited
liability partnership) or a limited liability company or a professional
corporation (or is comprised of two (2) or more Persons, individually or as co-
partners of a partnership (including, without limitation a limited liability
partnership), as members of a limited liability company or as shareholders of a
professional corporation) or if Tenant's interest in this Lease shall be
assigned to a partnership (including, without limitation, a limited liability
partnership) a limited liability company or a professional corporation (or to
two (2) or more Persons, individually or as co-partners of a partnership, as
members of a limited liability company or shareholders of a professional
corporation) pursuant to Article 12 hereof (any such partnership, professional
corporation and such Persons are referred to in this Article 29 as "Partnership
Tenant"), the following provisions shall apply to such Partnership Tenant: (a)
the liability of each of the parties comprising Partnership Tenant shall be
joint and several; (b) each of the parties comprising Partnership Tenant hereby
consents in advance to, and agrees to be bound by (x) any written instrument
which may hereafter be executed by Partnership Tenant or any successor entity,
changing, modifying, extending or discharging this Lease, in whole or in part,
or surrendering all or any part of the Premises to Landlord, and (y) any
notices, demands, requests or other communications which may hereafter be given
by Partnership Tenant or by any of the parties comprising Partnership Tenant;
(c) any bills, statements, notices, demands, requests or other communications
given or rendered to Partnership Tenant or to any of such parties shall be
binding upon Partnership Tenant and all such parties; (d) if Partnership Tenant
shall admit new partners, shareholders or members, as the case may be,
Partnership Tenant shall give Landlord notice of such event not later than ten
(10) Business Days prior to the admission of such partner(s), shareholder(s)
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or member(s) together with an assumption agreement in form and substance
satisfactory to Landlord pursuant to which each of such new partners,
shareholders or members, as the case may be, shall, by their admission to
Partnership Tenant, agree to assume joint and several liability for the
performance of all of the terms, covenants and conditions of this Lease (as the
same may have been or thereafter be amended) on Tenant's part thereafter to be
observed and performed; it being expressly understood and agreed that each such
new partner, shareholder or member (as the case may be) shall be deemed to have
assumed joint and several liability for the performance of all of the terms,
covenants and conditions of this Lease (as the same may have been or thereafter
be amended), whether or not such new partner, shareholder or member shall have
executed such assumption agreement, and that neither Tenant's failure to deliver
such assumption agreement nor the failure of any such new partner or
shareholder, as the case may be, to execute or deliver any such agreement to
Landlord shall vitiate the provisions of this clause (d) of this Article 29).
ARTICLE 30
VAULT SPACE
-----------
Notwithstanding anything contained in this Lease or indicated on any
sketch, blueprint or plan, any vaults, vault space or other space outside the
boundaries of the Real Property are not included in the Premises. Landlord makes
no representation as to the location of the boundaries of the Real Property. All
vaults and vault space and all other space outside the boundaries of the Real
Property which Tenant may be permitted to use or occupy are to be used or
occupied under a revocable license, and if any such license shall be revoked, or
if the amount of such space shall be diminished or required by any Governmental
Authority or by any public utility company, such revocation, diminution or
requisition shall not constitute an actual or constructive eviction, in whole or
in part, or entitle Tenant to any abatement or diminution of Rental, or relieve
Tenant from any of its obligations under this Lease, or impose any liability
upon Landlord. Any fee, tax or charge imposed by any Governmental Authority for
any such vaults, vault space or other space occupied by Tenant shall be paid by
Tenant.
ARTICLE 31
SECURITY
--------
Section 31.1. Tenant shall deposit with Landlord on the signing of this
Lease the Security Amount for the 1st Security Period, or at Tenant's option, a
"clean," unconditional, irrevocable and transferable letter of credit (the
"Letter of Credit") in the same amount, satisfactory to Landlord, issued by and
drawn on a bank satisfactory to Landlord and which is a member of the New York
Clearing House Association, for the account of Landlord, for a term of not less
than one (1) year, as security for the faithful performance and observance by
Tenant of the terms, covenants, conditions and provisions of this Lease,
including, without limitation, the surrender of possession of the Premises to
Landlord as herein provided. If an Event of Default shall occur and be
continuing, Landlord may apply the whole or any part of the security so
deposited, or present the Letter of Credit
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for payment and apply the whole or any part of the proceeds thereof, as the case
may be, (i) toward the payment of any Fixed Rent, Escalation Rent or any other
item of Rental as to which Tenant is in default, (ii) toward any sum which
Landlord may expend or be required to expend by reason of Tenant's default in
respect of any of the terms, covenants and conditions of this Lease, including,
without limitation, any damage, liability or expense (including, without
limitation, reasonable attorneys' fees and disbursements) incurred or suffered
by Landlord, and (iii) toward any damage or deficiency incurred or suffered by
Landlord in the reletting of the Premises, whether such damages or deficiency
accrue or accrues before or after summary proceedings or other re-entry by
Landlord. If Landlord applies or retains any part of the proceeds of the Letter
of Credit or the security so deposited, as the case may be, Tenant, upon demand,
shall deposit with Landlord the amount so applied or retained so that Landlord
shall have the full deposit on hand at all times during the Term. If Tenant
shall fully and faithfully comply with all of the terms, provisions, covenants
and conditions of this Lease, the Letter of Credit or the security, as the case
may be, shall be returned to Tenant after the Expiration Date and after delivery
of possession of the Premises to Landlord. In the event of a sale or leasing of
the Real Property or the Building, Landlord shall have the right to transfer the
Letter of Credit or security, as the case may be, to the vendee or lessee and
Landlord shall thereupon be released by Tenant from all liability for the return
of such security or the Letter of Credit, as the case may be, and Tenant shall
cause the bank which issued the Letter of Credit to issue an amendment to the
Letter of Credit or issue a new Letter of Credit naming the vendee or lessee as
the beneficiary thereunder. Tenant shall look solely to the new landlord for the
return of the Letter of Credit or the security, as the case may be. The
provisions hereof shall apply to every transfer or assignment of the Letter of
Credit or security made to a new landlord. Tenant shall not assign or encumber
or attempt to assign or encumber the monies deposited herein as security and
neither Landlord nor its successors or assigns shall be bound by any such
assignment, encumbrance, attempted assignment or attempted encumbrance. Tenant
shall renew any Letter of Credit from time to time, at least thirty (30) days
prior to the expiration thereof, and deliver to Landlord a new Letter of Credit
or an endorsement to the Letter of Credit, and any other evidence required by
Landlord that the Letter of Credit has been renewed for a period of at least one
(1) year. If Tenant shall fail to renew the Letter of Credit as aforesaid,
Landlord may present the Letter of Credit for payment and retain the proceeds
thereof as security in lieu of the Letter of Credit.
Section 31.2. Provided no Event of Default shall have occurred and be
continuing, on the first day of the 2nd Security Period, 3rd Security Period and
the 4th Security Period, respectively, (a) if the Letter of Credit is on
deposit, Tenant shall be entitled to replace the Letter of Credit on deposit
with Landlord with a Letter of Credit in the Security Amount applicable to such
Security Period, or (b) if Tenant shall have deposited with Landlord cash
security in lieu of a Letter of Credit, if the Security Amount for such Security
Period is less than the security then on deposit for the immediately preceding
Security Period, and provided that Tenant shall have fully and faithfully
complied with all of the terms, provisions, covenants and conditions of this
Lease, Landlord shall refund to Tenant an amount equal to the amount by which
the Security Amount for such Security Period exceeds the security then on
deposit for the immediately preceding Security Period.
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ARTICLE 32
CAPTIONS
--------
The captions are inserted only as a matter of convenience and for reference
and in no way define, limit or describe the scope of this Lease nor the intent
of any provision thereof.
ARTICLE 33
PARTIES BOUND
-------------
The covenants, conditions and agreements contained in this Lease shall bind
and inure to the benefit of Landlord and Tenant and their respective legal
representatives, successors, and, except as otherwise provided in this Lease,
their assigns.
ARTICLE 34
BROKER
------
Each party represents and warrants to the other that it has not dealt with
any broker or Person in connection with this Lease other than Grubb Ellis New
York, Inc. and Helmsley-Spear, Inc. (collectively "Broker"). The execution and
delivery of this Lease by each party shall be conclusive evidence that such
party has relied upon the foregoing representation and warranty. Tenant shall
indemnify and hold Landlord harmless from and against any and all claims for
commission, fee or other compensation by any Person (other than Broker) who
shall claim to have dealt with Tenant in connection with this Lease and for any
and all costs incurred by Landlord in connection with such claims, including,
without limitation, reasonable attorneys' fees and disbursements. Landlord shall
pay Broker a commission pursuant to a separate agreements between Landlord and
each of the companies comprising Broker. The provisions of this Article 34 shall
survive the Expiration Date.
ARTICLE 35
INDEMNITY
---------
Section 35.1. (A) Subject to Section 12.6(D) hereof, Tenant shall not do or
permit any act or thing to be done upon the Premises which may subject Landlord
to any liability or responsibility for injury, damages to persons or property or
to any liability by reason of any violation of any Requirement, and shall
exercise such control over the Premises as to fully protect Landlord against any
such liability. Tenant shall indemnify and save the Indemnitees harmless from
and against (a) all claims of whatever nature against the Indemnitees arising
from any act, omission or negligence of Tenant, its contractors, licensees,
agents, servants, employees, invitees or visitors, (b) all claims against the
Indemnitees arising from any accident, injury or damage whatsoever caused to any
person or to the property of any person and occurring during the Term in or
about the Premises, (c) all claims against the Indemnitees arising from any
accident, injury or damage occurring outside of
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the Premises but anywhere within or about the Real Property, where such
accident, injury or damage results or is claimed to have resulted from an act,
omission or negligence of Tenant or Tenant's contractors, licensees, agents,
servants, employees, invitees or visitors, and (d) any breach, violation or non-
performance of any covenant, condition or agreement in this Lease set forth and
contained on the part of Tenant to be fulfilled, kept, observed and performed.
This indemnity and hold harmless agreement shall include indemnity from and
against any and all liability, fines, suits, demands, costs and expenses of any
kind or nature (including, without limitation, reasonable attorneys' fees and
disbursements) incurred in or in connection with any such claim or proceeding
brought thereon, and the defense thereof but except with respect to claims with
respect to bodily injury or death, shall be limited to the extent any insurance
proceeds collectible by Landlord under policies owned by Landlord or such
injured party with respect to such damage or injury are insufficient to satisfy
same. Tenant shall have no liability for any consequential damages suffered
either by Landlord or by any party claiming through Landlord.
(B) Except as provided in Articles 4, 9, 10, 13, 28, 36 and 37 hereof
and otherwise as expressly provided herein, Landlord shall indemnify and save
Tenant its shareholders, directors, officers, Partners, employees and agents
harmless from and against all claims against Tenant arising from any direct
damage to the Premises and any bodily injury to Tenant's employees, agents or
invitees resulting from the acts, omissions or negligence of Landlord or its
agents. This indemnity and hold harmless agreement shall include indemnity from
and against any and all liability, fines, suits, demands, costs and expenses of
any kind or nature (including, without limitation, reasonable attorneys' fees
and disbursements) incurred in or in connection with any such claim or
proceeding brought thereon, but except with respect to claims with respect to
bodily injury or death, shall be limited to the extent any insurance proceeds
collectible by Tenant or such injured party with respect to such damage or
injury are insufficient to satisfy same. Landlord shall have no liability for
any consequential damages suffered either by Tenant or by any party claiming
through Tenant.
Section 35.2. If any claim, action or proceeding is made or brought against
either party, which claim, action or proceeding the other party shall be
obligated to indemnify such first party against pursuant to the terms of this
Lease, then, upon demand by the indemnified party, the indemnifying party, at
its sole cost and expense, shall resist or defend such claim, action or
proceeding in the indemnified party's name, if necessary, by such attorneys as
the indemnified party shall approve, which approval shall not be unreasonably
withheld. Attorneys for the indemnifying party's insurer are hereby deemed
approved for purposes of this Section 35.2. Notwithstanding the foregoing, an
indemnified party may retain its own attorneys to defend or assist in defending
any claim, action or proceeding involving potential liability of Five Million
Dollars ($5,000,000) or more, and the indemnifying party shall pay the
reasonable fees and disbursements of such attorneys. The provisions of this
Article 35 shall survive the expiration or earlier termination of this Lease.
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ARTICLE 36
ADJACENT EXCAVATION-SHORING
---------------------------
If an excavation shall be made upon land adjacent to the Premises, or shall
be authorized to be made, Tenant, upon reasonable advance notice, shall afford
to the person causing or authorized to cause such excavation, a license to enter
upon the Premises for the purpose of doing such work as said person shall deem
necessary to preserve the wall or the Building from injury or damage and to
support the same by proper foundations, without any claim for damages or
indemnity against Landlord, or diminution or abatement of Rental, provided that
Tenant shall continue to have access to the Premises and the Building.
ARTICLE 37
MISCELLANEOUS
-------------
Section 37.1. This Lease is offered for signature by Tenant and it is
understood that this Lease shall not be binding upon Landlord or Tenant unless
and until Landlord and Tenant shall have executed and unconditionally delivered
a fully executed copy of this Lease to each other.
Section 37.2. The obligations of Landlord under this Lease shall not be
binding upon Landlord named herein after the sale, conveyance, assignment or
transfer by such Landlord (or upon any subsequent landlord after the sale,
conveyance, assignment or transfer by such subsequent landlord) of its interest
in the Building or the Real Property, as the case may be, and in the event of
any such sale, conveyance, assignment or transfer, Landlord shall be and hereby
is entirely freed and relieved of all covenants and obligations of Landlord
hereunder. The partners, shareholders, directors, officers and principals,
direct and indirect, comprising Landlord (collectively, the "Parties") shall not
be liable for the performance of Landlord's obligations under this Lease. Tenant
shall look solely to Landlord to enforce Landlord's obligations hereunder and
shall not seek any damages against any of the Parties. The liability of Landlord
for Landlord's obligations under this Lease shall be limited to Landlord's
interest in the Real Property and Tenant shall not look to any other property or
assets of Landlord or the property or assets of any of the Parties in seeking
either to enforce Landlord's obligations under this Lease or to satisfy a
judgment for Landlord's failure to perform such obligations.
Section 37.3. Notwithstanding anything contained in this Lease to the
contrary, all amounts payable by Tenant to or on behalf of Landlord under this
Lease, whether or not expressly denominated Fixed Rent, Escalation Rent,
additional rent or Rental, shall constitute rent for the purposes of Section
502(b)(7) of the Bankruptcy Code.
Section 37.4. Tenant's liability for all items of Rental shall survive the
Expiration Date.
Section 37.5. Tenant shall reimburse Landlord as additional rent, within
fifteen (15) Business Days after rendition of a statement, for all expenditures
made by, or damages or fines
75
<PAGE>
sustained or incurred by, Landlord, due to any default by Tenant under this
Lease, with interest thereon at the Applicable Rate.
Section 37.6. This Lease shall not be recorded.
Section 37.7. Tenant hereby waives any claim against Landlord which Tenant
may have based upon any assertion that Landlord has unreasonably withheld or
unreasonably delayed any consent or approval requested by Tenant, and Tenant
agrees that its sole remedy shall be an action or proceeding to enforce any
related provision or for specific performance, injunction or declaratory
judgment. In the event of a determination that such consent or approval has been
unreasonably withheld or delayed, the requested consent or approval shall be
deemed to have been granted; however, Landlord shall have no liability to Tenant
for its refusal or failure to give such consent or approval. Tenant's sole
remedy for Landlord's unreasonably withholding or delaying consent or approval
shall be as provided in this Section 37.7.
Section 37.8. This Lease contains the entire agreement between the parties
and supersedes all prior understandings, if any, with respect thereto. This
Lease shall not be modified, changed, or supplemented, except by a written
instrument executed by both parties.
Section 37.9. Tenant hereby (a) irrevocably consents and submits to the
jurisdiction of any Federal, state, county or municipal court sitting in the
State of New York in respect to any action or proceeding brought therein by
Landlord against Tenant concerning any matters arising out of or in any way
relating to this Lease; (b) irrevocably waives personal service of any summons
and complaint and consents to the service upon it of process in any such action
or proceeding by mailing of such process to Tenant at the address set forth
herein and hereby irrevocably designates Jones, Day, Reavis & Pogue or other law
firm located in Manhattan if disclosed to Landlord in writing (or if not so
located, then upon any member of the law firm of Jones, Day, Reavis & Pogue, or
their successor, if so located in Manhattan), to accept service of any process
on Tenant's behalf and hereby agrees that such service shall be deemed
sufficient; (c) irrevocably waives all objections as to venue and any and all
rights it may have to seek a change of venue with respect to any such action or
proceedings; (d) agrees that the laws of the State of New York shall govern in
any such action or proceeding and waives any defense to any action or proceeding
granted by the laws of any other country or jurisdiction unless such defense is
also allowed by the laws of the State of New York; and (e) agrees that any
final judgment rendered against it in any such action or proceeding shall be
conclusive and may be enforced in any other jurisdiction by suit on the judgment
or in any other manner provided by law. Tenant further agrees that any action or
proceeding by Tenant against Landlord in respect to any matters arising out of
or in any way relating to this Lease shall be brought only in the State of New
York, county of New York. In furtherance of the foregoing, Tenant hereby agrees
that its address for notices given by Landlord and service of process under this
Lease shall be the Premises. Notwithstanding the foregoing provisions of this
Section 37.9, Tenant may, by written notice to Landlord, change the designated
agent for acceptance of service of process to any other law firm located in the
City, county and State of New York.
76
<PAGE>
Section 37.10. Unless Landlord shall render wntten notice to Tenant to the
contrary in accordance with the provisions of Article 26 hereof, MRC Management
LLC is authorized to act as Landlord's agent in connection with the performance
of this Lease, including, without limitation, the receipt and delivery of any
and all notices and consents in accordance with Article 26. Tenant shall direct
all correspondence and requests to, and shall be entitled to rely upon
correspondence received from, MRC Management LLC, as agent for the Landlord in
accordance with Article 26. Tenant acknowledges that MRC Management LLC, is
acting solely as agent for Landlord in connection with the foregoing, and
neither MRC Management LLC nor any of its direct or indirect partners, officers,
shareholders, directors or employees shall have any liability to Tenant in
connection with the performance of Landlord's obligations under this Lease and
Tenant waives any and all claims against any such party arising out of, or in
any way connected with, this Lease or the Real Property.
Section 37.ll. (A) All of the Schedules and Exhibits attached hereto are
incorporated in and made a part of this Lease, but, in the event of any
inconsistency between the terms and provisions of this Lease and the terms and
provisions of the Schedules and Exhibits hereto, the terms and provisions of
this Lease shall control. Wherever appropriate in this Lease, personal pronouns
shall be deemed to include the other genders and the singular to include the
plural. All Article and Section references set forth herein shall, unless the
context otherwise specifically requires, be deemed references to the Articles
and Sections of this Lease.
(B) If any term, covenant, condition or provision of this Lease, or
the application thereof to any person or circumstance, shall ever be held to be
invalid or unenforceable, then in each such event the remainder of this Lease or
the application of such term, covenant, condition or provision to any other
Person or any other circumstance (other than those as to which it shall be
invalid or unenforceable) shall not be thereby affected, and each term,
covenant, condition and provision hereof shall remain valid and enforceable to
the fullest extent permitted by law.
(C) All references in this Lease to the consent or approval of
Landlord shall be deemed to mean the written consent or approval of Landlord and
no consent or approval of Landlord shall be effective for any purpose unless
such consent or approval is set forth in a written instrument executed by
Landlord.
ARTICLE 38
RENT CONTROL
------------
If at the commencement of, or at any time or times during the Term of this
Lease, the Rental reserved in this Lease shall not be fully collectible by
reason of any Requirement, Tenant shall enter into such agreements and take such
other steps (without additional expense to Tenant) as Landlord may request and
as may be legally permissible to permit Landlord to collect the maximum rents
which may from time to time during the continuance of such legal rent
restriction be legally permissible (and not in excess of the amounts reserved
therefor under this Lease). Upon the termination of such legal rent restriction
prior to the expiration of the Term, (a) the Rental shall become and thereafter
be payable hereunder in accordance with the amounts reserved in this Lease
77
<PAGE>
for the periods following such termination, and (b) tenant shall pay to
Landlord, if legally permissible, an amount equal to (i) the items of Rental
which would have been paid pursuant to this Lease but for such legal rent
restriction less (ii) the rents paid by Tenant to Landlord during the period or
periods such legal rent restriction was in effect.
78
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have respectively executed this
Lease as of the day and year first above written.
ONE PENN PLAZA LLC, Landlord
By: Vornado Realty, L.P.
By: Vornado Realty Trust
By:
--------------------------
Name:
Title:
FOCAL COMMUNICATIONS CORP., Tenant
By: Brian F. Addy
-----------------------------
Name: Brian F. Addy
Title: Executive Vice President
Fed. Id. No. 364128831
-------------
79
<PAGE>
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
On the 10th day of September, 1998, before me personally came Brian Addy,
to me known, who, being by me duly sworn, did depose and say that he resides at
No. 200 North LaSalle Street, Chicago, IL; that he is the Executive Vice
President of FOCAL COMMUNICATIONS CORP., the corporation described and which
executed the foregoing instrument; that he signed his name thereto by order of
the board of managers of said corporation.
- - --------------------------------
"OFFICIAL SEAL"
ROBERT DALE ANDERSON /s/ Robert Dale Anderson
Notary Public, State of Illinois ---------------------------
My Commission Expires 05/07/00 Notary Public
- - --------------------------------
80
<PAGE>
Schedule A
----------
RULES AND REGULATIONS
---------------------
(1) The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors, or halls shall not be obstructed or encumbered by Tenant
or used for any purpose other than ingress and egress to and from the Premises
and for delivery of merchandise and equipment in prompt and efficient manner,
using elevators and passageways designated for such delivery by Landlord.
(2) No awnings, air-conditioning units, fans or other projections shall be
attached to the outside walls of the Building. No curtains, blinds, shades, or
screens, other than those which conform to Building standards as established by
Landlord from time to time, shall be attached to or hung in, or used in
connection with, any window or door of the Premises, without the prior written
consent of Landlord which shall not be unreasonably withheld or delayed. Such
awnings, projections, curtains, blinds, shades, screens or other fixtures must
be of a quality, type, design and color, and attached in the manner reasonably
approved by Landlord. All electrical fixtures hung in offices or spaces along
the perimeter of the Premises must be of a quality, type, design and bulb color
approved by Landlord, which consent shall not be withheld or delayed
unreasonably unless the prior consent of Landlord has been obtained for other
lamping.
(3) No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by Tenant on any part of the outside of the
Premises or Building or on the inside of the Premises if the same can be seen
from the outside of the Premises without the prior written consent of Landlord
except that the name of Tenant may appear on the entrance door of the Premises.
In the event of the violation of the foregoing by Tenant, if Tenant has refused
to remove same after reasonable notice from Landlord, Landlord may remove same
without any liability, and may charge the expense incurred by such removal to
Tenant. Interior signs on doors and directory tablet shall be of a size, color
and style reasonably acceptable to Landlord.
(4) The exterior windows and doors that reflect or admit light and air into
the Premises or the halls, passageways or other public places in the Building,
shall not be covered or obstructed by Tenant.
(5) No showcases or other articles shall be put in front of or affixed to
any part of the exterior of the Building, nor placed in the halls, corridors or
vestibules, nor shall any article obstruct any air-conditioning supply or
exhaust without the prior written consent of Landlord.
(6) The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were constructed, and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein.
All damages resulting from any misuse of the fixtures shall be borne by Tenant.
(7) Subject to the provisions of Article 3 of this Lease, Tenant shall not
mark, paint, drill
A-1
<PAGE>
into, or in any way deface any part of the Premises or the Building. No boring,
cutting or stringing of wires shall be permitted, except with the prior written
consent of Landlord, which consent shall not be unreasonably withheld or
delayed, and as Landlord may direct.
(8) No space in the Building shall be used for manufacturing, for the
storage of merchandise, or for the sale of merchandise, goods or property of any
kind at auction or otherwise.
(9) Tenant shall not make, or permit to be made, any unseemly or disturbing
noises or disturb or interfere with occupants of this or neighboring buildings
or premises or those having business with them whether by the use of any musical
instrument, radio, television set, talking machine, unmusical noise, whistling,
singing, or in any other way.
(10) Tenant, or any of Tenant's employees, agents, visitors or licensees,
shall not at any time bring or keep upon the Premises any inflammable,
combustible or explosive fluid, chemical or substance except such as are
incidental to usual office occupancy.
(11) No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by Tenant, nor shall any changes be made in existing locks
or the mechanism thereof, unless Tenant promptly provides Landlord with the key
or combination thereto. Tenant must, upon the termination of its tenancy, return
to Landlord all keys of stores, offices and toilet rooms, and in the event of
the loss of any keys furnished at Landlord's expense, Tenant shall pay to
Landlord the cost thereof.
(12) No bicycles, vehicles or animals of any kind except for seeing eye
dogs shall be brought into or kept by Tenant in or about the Premises or the
Building.
(13) All removals, or the carrying in or out of any safes, freight,
furniture or bulky matter of any description must take place in the manner and
during the hours which Landlord or its agent reasonably may determine from time
to time. Landlord reserves the right to inspect all safes, freight or other
bulky articles to be brought into the Building and to exclude from the Building
all safes, freight or other bulky articles which violate any of these Rules and
Regulations or the Lease of which these Rules and Regulations are a part.
(14) Tenant shall not occupy or permit any portion of the Premises demised
to it to be occupied as an office for a public stenographer or typist, or for
the possession, storage, manufacture, or sale of liquor, narcotics, dope, or as
a barber or manicure shop, or as an employment bureau. Tenant shall not engage
or pay any employees on the Premises, except those actually working for Tenant
at the Premises, nor advertise for labor giving an address at the Premises.
(15) Tenant shall not purchase spring water, ice, towels or other like
service, or accept barbering or bootblacking services in the Premises, from any
company or persons not approved by Landlord, which approval shall not be
withheld or delayed unreasonably and at hours and under regulations other than
as reasonably fixed by Landlord.
A-2
<PAGE>
(16) Landlord shall have the right to prohibit any advertising by Tenant
which, in Landlord's reasonable opinion, tends to impair the reputation of the
Building or its desirability as a building for offices, and upon written notice
from Landlord, Tenant shall refrain from or discontinue such advertising.
(17) Landlord reserves the right to exclude from the Building between the
hours of 6 P.M. and 8 A.M. and at all hours on days other than Business Days all
persons who do not present a pass to the Building signed or approved by
Landlord. Tenant shall be responsible for all persons for whom a pass shall be
issued at the request of Tenant and shall be liable to Landlord for all acts of
such persons.
(18) Tenant shall, at its expense, provide artificial light for the
employees of Landlord while doing janitor service or other cleaning, and in
making repairs or alterations in the Premises.
(19) The requirements of Tenant will be attended to only upon written
application at the office of the Building. Building employees shall not perform
any work or do anything outside of the regular duties, unless under special
instructions from the office of Landlord.
(20) Canvassing, soliciting and peddling in the Building is prohibited and
Tenant shall cooperate to prevent the same.
(21) There shall not be used in any space, or in the public halls of the
Building, either by Tenant or by jobbers or others, in the delivery or receipt
of merchandise, any hand trucks, except those equipped with rubber tires and
side guards.
(22) Except as specifically provided in Section 2.2 of this Lease, Tenant
shall not do any cooking, conduct any restaurant, luncheonette or cafeteria for
the sale or service of food or beverages to its employees or to others, or cause
or permit any odors of cooking or other processes or any unusual or
objectionable odors to emanate from the Premises.
(23) Tenant shall keep the entrance door to the Premises closed at all
times.
(24) Landlord shall have the right to require that all messengers and other
Persons delivering packages, papers and other materials to Tenant (i) be
directed to deliver such packages, papers and other materials to a Person
designated by Landlord who will distribute the same to Tenant or (ii) be
escorted by a person designated by Landlord to deliver the same to Tenant.
(25) Landlord and its agents reserve the right to inspect all packages,
boxes, bags, handbags, attache cases, suitcases, and other items carried into
the Building, and to refuse entry into the Building to any person who either
refuses to cooperate with such inspection or who is carrying any object which
may be dangerous to persons or property. In addition, Landlord reserves the
right to implement such further measures designed to ensure safety of the
Building and the persons and property located therein as Landlord shall deem
necessary or desirable.
A-3
<PAGE>
Schedule B
---------
CLEANING SPECIFICATIONS
GENERAL CLEANING:
NIGHTLY
- - -------
General Offices:
1. All hardsurfaced flooring to be swept using approved dustdown
preparation.
2. Carpet sweep all carpets, moving only light furniture (desks, file
cabinets, etc. not to be moved).
3. Hand dust and wipe clean all furniture, fixtures and window sills.
4. Empty and clean all ash trays and screen all sand urns.
5. Empty and clean all waste disposal cans and baskets.
6. Dust interiors of all waste disposal cans and baskets.
7. Wash clean all water fountains and coolers.
Public Lavatories (Base Building):
1. Sweep and wash all floors, using proper disinfectants.
2. Wash and polish all mirrors, shelves, bright work and enameled
surfaces.
3. Wash and disinfect all basins, bowls and urinals.
4. Wash all toilet seats.
5. Hand dust and clean all partitions, tile walls, dispensers and
receptacles in lavatories and restrooms.
6. Empty paper receptacles and remove wastepaper.
7. Fill and clean all soap, towel and toilet tissue dispensers as needed,
supplies therefore
B-1
<PAGE>
to be furnished by Landlord at a reasonable charge to Tenant. If the
Premises consists of a part of a rentable floor, said charge to Tenant
shall be that portion of a reasonable charge for such supplies that is
reasonably allocable to Tenant.
8. Empty and clean sanitary disposal receptacles.
WEEKLY:
- - -------
1. Vacuum clean all carpeting and rugs.
2. Dust all door louvres and other ventilating louvres within a person's
reach.
3. Wipe clean all brass and other bright work.
QUARTERLY:
- - ----------
High dust the Premises complete, including the following:
1. Dust all pictures, frames, charts, graphs and similar wall hangings
not reached in nightly cleaning.
2. Dust clean all vertical surfaces, such as walls, partitions, doors
and door bucks and other surfaces not reached in nightly cleaning.
3. Dust all pipes, ventilating and air-conditioning louvres, ducts, high
mouldings and other high areas not reached in nightly cleaning.
4. Dust all venetian blinds.
Wash exterior and interior of windows periodically, subject to weather
conditions and requirements of law.
B-2
<PAGE>
EXHIBIT "A"
-----------
FLOOR PLAN
This floor plan is annexed to and made a part of this Lease solely to indicate
the Premises by outlining and diagonal marking. All areas, conditions,
dimensions and locations are approximate.
86
<PAGE>
[ART TK]
87
<PAGE>
EXHIBIT "B"
-----------
LIST OF APPROVED CONTRACTORS
88
<PAGE>
APPROVED CONTRACTORS LIST
<TABLE>
<CAPTION>
GENERAL CONTRACTORS PHONE NUMBER CONTACT PERSON
<S> <C> <C>
Ambassador Construction (212) 922-1020 Bill Bennett
Lehr Construction (212) 353-1160 Gerald Lazer
Lesal Interiors.(Ocean Valley) (718) 776-0077 Gary Sherwood
Structure Tone (212) 481-6100 John White
TriStar Corp. (212) 436-0808 Bill Weiner
SUB-CONTRACTORS
ASBESTOS ABATEMENT
- - --------------------------------------------------------------------------------
NAC (212) 219-0880 Mike Caputo
Abtron (516) 364-4678 Jim Thurston
Abatement Int. (718) 994-2000 Bill McKenzie
AWNINGS
- - --------------------------------------------------------------------------------
Acme Awning Co. (718) 409-1881 Ken Cohen
BLINDS
- - --------------------------------------------------------------------------------
Ultimate Services (203) 531-0623 David Marinelli
BOILERS
- - --------------------------------------------------------------------------------
M.P.S. (718) 834-9393 Nick Papps
Marine Welding (212) 991-3203 William Falco
CERAMIC
- - --------------------------------------------------------------------------------
Quarry Tile (212) 679-8889 Helen Stember
Port Morris (718) 378-6100 Vincent Lauricella
CONCRETE
- - --------------------------------------------------------------------------------
Melva (718) 482-1932 Chris Batalias
Lesal Interiors (718) 776-0077 Gary Sherwood
Landsite Contracting (516) 938-8200 Adriano P. Lott
Francis A. Lee Exterior
Restoration Corp. (516) 938-2000 Francis A. Lee
CONVECTORS/COVERS
- - --------------------------------------------------------------------------------
Wenig Corp. (718) 542-3600 Ray Zimmerman
Hack Environmental (914) 946-3800 Ken Hack
Airflux (516) 752-1234 Al Wenksus
</TABLE>
Page 1 of 5
<PAGE>
<TABLE>
DEMOLITION
- - --------------------------------------------------------------------------------
<S> <C> <C>
General Container, Inc. (718) 834-8100 Charlie Raffa
Advance Carting (212) 691-3200 Gene Skowronski
Riteway (212) 458-8900 Nick Verna
Dacosta Demolition (718) 565-8588 Ernie Dacosta
DRYWALL/SHEETROCK
- - --------------------------------------------------------------------------------
CLK construction (212) 986-4580 Cory Koven
Dejil (718) 939-3700 Sy Levine
Ess & Vee (718) 786-1100 Tony Verderame
John Moresky (516) 735-7015 John Moresky
Nordic Interiors, Inc. (718) 456-7000 Lloyd Jacobson
Lesal Interiors (718) 776-0077 Gary Sherwood
Sweeney & Harkin Carpentry
Dry Wall Corp. (S & H) (718) 392-0190 Don Masterson
ELECTRIC
- - --------------------------------------------------------------------------------
Forest Electric (212) 594-4110 Phil Altheim
I Lite (212) 262-9488 Anthony Izzo
C.W. Greene (212) 267-0440 James Angus
Egg Electric (212) 633-9551 Ellen Aschendorf
ELECTRIC SUPPLIES
- - --------------------------------------------------------------------------------
Benfield Electrical Supply (718) 706-9209 ext. 269 Mike O'Brien
FLOORING
- - --------------------------------------------------------------------------------
Ashland Industries (914) 777-4507 Carmine Notaro
Lorraine Flooring (718) 482-0068 Stephen Verderame
FOLDING WALLS
- - --------------------------------------------------------------------------------
Modernfold Doors (212) 684-4210 Robert Styles
National (Manhattan) (212) 924-1567 Edmund Grecco
GLASS REPLACEMENT
- - --------------------------------------------------------------------------------
East Side Glass (212) 674-8355 Mark Rosen
Knickerbocker Glass (212) 247-8500 Sidney Glasser
H.V.A.C.
- - --------------------------------------------------------------------------------
JDP Mechanical (718) 204-5500 Peter Manos Jr.
Omega Cooling (212) 268-7100 Ron Irving
Nelson Air Device (718) 729-3801 Nelson Blitz
P.J. Mechanical (212) 243-2555 Mitchell Singer
P & L Mechanical (212) 966-6054 Tom Lacorazza
Penguin Air Conditioning (718) 706-2528 William Ash
Refrigeration Resources (516) 921-5149 George Gerlinsky
</TABLE>
Page 2 of 5
<PAGE>
<TABLE>
<CAPTION>
HARDWARE/DOORLOCKS
- - --------------------------------------------------------------------------------
<S> <C> <C>
Midtown (212) 730-2052 Bill Ferrara
Weinstein & Holtzman (212) 233-4651 Jeff Hymowitz
HARDWARE/BUILDING SUPPLIES
- - --------------------------------------------------------------------------------
Crest Supply (212) 967-2276 Vincent Zerbo
Consolidated Supply (718) 824-2033 Mark Wisner
LATH & ACOUSTICS
- - --------------------------------------------------------------------------------
Ess & Vee Acoustical (718) 786-1100 Tony Verderame
Superior (516) 352-0300 Quinn Mesorana
LIGHTING
- - --------------------------------------------------------------------------------
Speclite (516) 822-8800 James Willey
Project Lighting (718) 417-8182 Tony Capranzano
Benfield Electrical Supply (718) 706-9209 ext. 269 Mike O'Brien
MARBLE
- - --------------------------------------------------------------------------------
Quarry Tile (212) 679-8889 Helen Stember
Joe Cochoran (516) 423-8737 Joe Cochoran
MASONRY / PLASTER
- - --------------------------------------------------------------------------------
Cirroccio Ozzino (C & O) (516) 847-0185
Indelicato (713) 409-9022 Ed DiGiacomo
METAL / GLASS PARTITIONS
- - --------------------------------------------------------------------------------
F & F (201) 402-7710 Eric Frank
Metralite (718) 961-1770 Don Silverman
Acme (718) 384-7800 George DeFeis
Abbott
PAINTING
- - --------------------------------------------------------------------------------
Bond Painting (212) 944-0070 Stuart Feld
J.I. Haas (212) 687-6678 Jay Hass
Hudson Shatz (212) 757-6363 George Story
Wexler Services Corp. (212) 245-1110 Vera Young
PLUMBING
- - --------------------------------------------------------------------------------
B & Z Mechanical (212) 967-2276 Bill Bowerman
PAR Plumbing (516) 887-4000 Sandi Deutsch
American Contracting (212) 736-6618 Richard Silver
WIRE MESH
- - --------------------------------------------------------------------------------
Acorn Wire & Iron works (212) 697-7370 Bert Damone
</TABLE>
Page 3 of 5
<PAGE>
<TABLE>
<CAPTION>
RAISED FLOOR
- - --------------------------------------------------------------------------------
<S> <C> <C>
(Gayle, King, Carr)
Donn Floors
(Werner Krebs) (212) 325-5400 Val Bonanno
Raised Floors (201) 778-2444 Eric Lagerstrum
Computer Floors (201) 340-3666 Tor Sundlin
American Computer Floors
C-Teg Mfg. (212) 686-8994
RIGGING
- - -------------------------------------------------------------------------------
Aalco Transport & storage (516) 789-8000 Jeff Krevat
Francis A. Lee Exterior (516) 938-2000 Francis A. Lee
Restoration Corp.
ROLLING DOORS
- - --------------------------------------------------------------------------------
Franklin Sq. Iron Works (201) 612-1995 Richie Singer
American Industrial Door (516) 586-8006 Ed Jurman
Atlas Doors (201) 572-5700 Tom Eodice
McKenzie Group (212) 227-1630
Miric Industries (212) 594-9898 Mike Petrico
ROOFING
- - --------------------------------------------------------------------------------
Melva Const. Corp. (718) 482-1932 Chris Batalias
A. Best (718) 779-3003 Lon Best
Arrow Restoration (713) 729-0411 Marshall Geller
Empire National Const. Corp. (212) 594-1800 Paul Pfeifer
SCREENS
- - --------------------------------------------------------------------------------
Lejac (516) 334-0855 Todd Norris
Raven (212) 534-8408 Martin Soss
Jenteen (201) 755-2127 Jerry Segal
SECURITY (CARD ACCESS; CAMERA/MONITORS)
- - --------------------------------------------------------------------------------
Security Technologies Group (609) 452-0985 Ken Hopkins
SBM Media (212) 268-6130 Patrick Barry
SIGNS
- - --------------------------------------------------------------------------------
Ensign Systems, Inc. (718) 416-2052 Kevin Ryan
Engraphics (212) 691-0777 Susan Perdoch
Forest sign Co. (212) 319-0100 Richard McGovern
SPRINKLER
- - --------------------------------------------------------------------------------
CGA Associates (973) 696-2405 Carl Guinta
Columbia Mechanical (212) 594-3014 Nick Pizzone
Sirina Fire Protection (516) 942-0400 Tony Florez
Abco peerless Sprinkler (516) 294-6850 Tim Bowe
</TABLE>
Page 4 of 5
<PAGE>
<TABLE>
<CAPTION>
STRUCTURAL STEEL &
STEEL WORK
- - --------------------------------------------------------------------------------
<S> <C> <C>
Franklin Iron Works (201) 612-1995 Richie Singer
Burgess Steel Products (212) 563-6000 Eugene Guerin
Koenig Iron Works (212) 924-4333 Norman Rosenbaum
TOILET ARTICLES
- - --------------------------------------------------------------------------------
LeJac (516) 334-0855 Tod Morris
Flush Metal (718) 784-3380 Jack Rubin
Jenteen
WATERPROOFING
- - --------------------------------------------------------------------------------
Melva (718) 482-1932 Chris Batalias
A. Best Contracting (718) 779-3003 Lon Best
Arrow Restoration (718) 729-0411 Marshall Geller
Francis A. Lee Exterior
& Restoration Corp. (516) 938-2000 Francis A. Lee
Empire National Const. Corp. (212) 594-1800 Paul Pfeifer
WOODEN FLOORS
- - --------------------------------------------------------------------------------
Capital (Hoboken)
Designed Wood Flooring
Center (212) 925-6633 Arnold Feinberg
Elite Flooring (212) 228-1050 Robert Rutledge
WOODWORKERS
- - --------------------------------------------------------------------------------
Antal
Millwright Woodwork (212) 755-1020 Martin Sherlock
Midhattan
Capital
Nordic (718) 456-7000 Lloyd Jacobson
Infra-Structures (516) 243-0700 Robert Larson
WINDOWS
- - --------------------------------------------------------------------------------
Air Master (718) 932-3434 or Mark Wisner
(914) 777-4500
Metro Windows (516) 360-8811 Elliot Glasser
</TABLE>
May 22, 1998 (10:35AM)
Page 5 of 5
<PAGE>
EXHIBIT "C"
HVAC SPECIFICATIONS
1. Landlord shall, through the HVAC System of the Building, furnish to the
Premises, on an all year round basis, air-conditioning, ventilation and heating
during the hours from 8:00 A.M. to 6:00 P.M. on Business Days. Provided Tenant
shall comply with the Rules and Regulations with respect to the HVAC System, the
HVAC System will be designed to provide summer interior conditions of 78 degrees
Fahrenheit when outside conditions are 95 degrees Fahrenheit and winter interior
conditions of 68 degrees Fahrenheit with outside conditions of 10 degrees
Fahrenheit.
2. Tenant acknowledges that its has been advised that the conditions
hereinbefore described cannot be maintained in the event of the occupancy of the
Premises by more than an average of one person for each 100 square feet of
usable area, or if Tenant installs and operates lighting, machines and
appliances, the total connected electrical loan of which exceeds 5.5 watts per
square foot of usable area, or if Tenant places or installs furniture, fixtures
or equipment closer than 24 inches to the perimeter HVAC convectors. Tenant, at
its sole cost and expense, agrees to move any item closer than 24 inches to the
HVAC convector, on request, so as to give access for maintenance, repair or
replacement thereof.
3. Tenant agrees to keep and cause to be kept closed all window in, and the
exterior doors to, the Premises, at all times. Tenant further agrees to
cooperate fully with Landlord and to abide by all regulations and requirements
which Landlord may reasonably prescribe for the proper functioning and
protection of said HVAC System.
<PAGE>
EXHIBIT 10.5
1ST AMENDMENT TO LEASE
----------------------
That certain lease dated April, 1998 by and between WELLS FARGO BANK, N.A., a
national banking association, "Sublandlord" and FOCAL COMMUNICATIONS CORPORATION
OF CALIFORNIA, a Delaware corporation, "Subtenant", for the premises located at
1200 West Seventh Street, Suite L2-250, Los Angeles, California 90017, is
amended this the 8th day of July 1998, solely as hereinafter described.
Effective the 17th day of July 1998, the clauses below are in addition to like
numbered clause in the lease agreement.
PARAGRAPH
1.4 "Premises": Subtenant shall occupy approximately 1,600 rentable
square feet located on the Plaza Level of the Building
and more particularly described in Exhibit A attached
hereto, and known as Suite 120. Subtenant shall accept
the premises in an "as-is" condition and the Sublandlord
shall not be responsible for any improvements.
1.5 "Sublease Term": Both parties acknowledge and agree that Suite 120 shall
be occupied on a temporary basis only. Term shall
commence on July 17, 1998 and expire on or before
September 30, 1998. Any clauses offering Options, Rights
of First Offer, Holdover as may be contained in the
original lease document do not apply to this premise.
1.6 "Basic Rent": Basic Rent means a per annum amount equal to the product
of $15.75 times the number of square feet of this
temporary space. Subtenant's monthly installment of Basic
Rent for this temporary space shall be $2,100.00.
All other terms and conditions of said Lease shall remain in full force and
effect.
IN WITNESS WHEREOF, Sublandlord and Subtenant have executed this Amendment as of
the date first shown above.
SUBLANDLORD: WELLS FARGO BANK, N.A., a national banking association.
By: /s/ Barbara Reeve-Bailey
--------------------------------
Barbara Reeve-Bailey
its Vice President
----------------------------
By: /s/ Judy Fishman
--------------------------------
Judy Fishman
its Vice President
----------------------------
SUBTENANT: FOCAL COMMUNICATIONS CORPORATION OF CALIFORNIA, a Delaware
corporation.
By: /s/ ?????????
--------------------------------
its EVP
----------------------------
By: /s/ ?????????
--------------------------------
its President
----------------------------
<PAGE>
[FLOOR PLAN]
1ST AMENDMENT TO LEASE Ground Level
FOCAL COMMUNICATIONS CORPORATION 1200 West Seventh Street
EXHIBIT "A" Los Angeles, California 90017
<PAGE>
EXHIBIT 10.6
FIRST AMENDMENT TO LEASE
------------------------
THIS FIRST AMENDMENT TO LEASE dated as of the 23rd day of July, 1998, by
and between 1120 VERMONT AVENUE ASSOCIATES, a District of Columbia limited
partnership ("Landlord"), and FOCAL COMMUNICATIONS CORPORATION, a Delaware
corporation duly qualified to transact business in the District of Columbia
("Tenant").
WITNESSETH:
WHEREAS, by Office Lease Agreement dated the 4th day of May, 1998 (the
"Lease"), Landlord leased unto Tenant approximately 19,414 square feet of space
(the "Premises") in that certain building known by street address as 1120
Vermont Avenue, NW, Washington, D.C. (the "Building"); and
WHEREAS, said Lease also provided Tenant with the right to use the "Roof
"Area" and "Outside Area" as such terms are defined under the Lease; and
WHEREAS, the particular dimensions of both the Roof Area and Outside Area
have been modified by the parties and the parties desire to amend the Lease to
reflect such modification, all upon the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the foregoing, and such other good and
valuable consideration, the receipt and sufficiency of which being hereby
acknowledged, the parties do hereby covenant and agree to amend the Lease as
follows:
1. Exhibit A. Exhibit A, of the Lease is hereby deleted in its entirety
and is replaced with Exhibit A (comprised of three (3) pages) attached hereto.
2. Recitals and Define Terms. The recitals set forth in the preamble are
hereby incorporated in and made a part of this First Amendment to Lease.
Capitalized terms used herein that are defined in the Lease and not defined
herein shall have the meaning assigned to them in the Lease.
3. Ratification. Except as herein modified, the Lease shall be and
remain in full force and effect, including without limitations, the obligations
of Tenant to pay all Base Rental, Additional Rental and Supplemental Rent as
provided for thereunder.
4. Multiple Counterparts. This First Amendment to Lease may be executed
in a number of counterparts, all of which taken together shall for all purposes
constitute one document, binding on all parties.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed on the day and year first hereinabove written.
WITNESS/ATTEST: LANDLORD:
---------
1120 VERMONT AVENUE ASSOCIATES
/s/ J. Scott Ogden By: /s/ Sylvan C. Herman, General Partner [SEAL]
- - ---------------------- ---------------------------------------
J. Scott Ogden Sylvan C. Herman, General Partner
TENANT:
-------
FOCAL COMMUNICATIONS CORPORATION
By: /s/ Brian F. Addy [SEAL]
- - ---------------------- ---------------------------------------
(Secretary) Authorized Officer and Attorney-In-Fact
Brian F. Addy, Executive Vice President
(Corporate Seal)
2
<PAGE>
EXHIBIT A
1 of 3
4/1/98
FOCAL COMMUNICATIONS CORPORATION
TERRACE LEVEL
19,414 WDCAR S.F. TOTAL
[MAP APPEARS HERE]
<PAGE>
EXHIBIT A
2 of 3
[MAP APPEARS HERE]
<PAGE>
EXHIBIT A
3 of 3
[MAP APPEARS HERE]
<PAGE>
EXHIBIT 10.7
FOCAL COMMUNICATIONS CORPORATION
1997 NONQUALIFIED STOCK OPTION PLAN
-----------------------------------
AMENDED AND RESTATED AS OF AUGUST 21, 1998
ARTICLE I
Purpose of Plan
---------------
The 1997 Stock Option Plan (the "Plan") of Focal Communications Corporation (the
"Company"), adopted by the Board of Directors of the Company on February 27,
1997, for executive and other key employees and directors of the Company, is
intended to advance the best interests of the Company by providing those persons
who have a substantial responsibility for its management and growth with
additional incentives by allowing them to acquire an ownership interest in the
Company and thereby encouraging them to contribute to the success of the Company
and to remain in its service. The availability and offering of stock options
under the Plan also increases the Company's ability to attract and retain
individuals of exceptional managerial talent upon whom, in large measure, the
sustained progress, growth and profitability of the Company depends.
ARTICLE II
Definitions
-----------
For purposes of the Plan, except where the context clearly indicates
otherwise, the following terms shall have the meanings set forth below:
"Board" shall mean the Board of Directors of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
any successor statute.
"Common Stock" shall mean the Company's Class A Common Stock, par
value $.01 per share, or if the outstanding Common Stock is hereafter changed
into or exchanged for different stock or securities of the Company, such other
stock or securities.
"Company" shall mean Focal Communications Corporation, a Delaware
corporation, and (except to the extent the context requires otherwise) any
subsidiary corporation of Focal Communications Corporation as such term is
defined in Section 425(f) of the Code.
"Disability" shall mean the inability, due to illness, accident,
injury, physical or mental incapacity or other disability, of any Participant to
carry out effectively his duties and obligations to the Company or to
participate effectively and actively in the management of the Company for a
period anticipated to last at least 6 months, as determined by the Board in its
good faith discretion.
-1-
<PAGE>
"Fair Market Value" of the Common Stock shall be the average, over a
period of 21 days consisting of the day as of which Fair Market Value is being
determined and the 20 consecutive business days prior to such day, of the
average of the closing prices of the sales of such Common Stock on all
securities exchanges on which such Common Stock may at that time be listed, or,
if there have been no sales on any such exchange on any day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of such
day, or, if on any day the Common Stock is not so listed, the average of the
representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M.,
New York time, or, ifon any day the Valued Stock is not quoted in the NASDAQ
System, the average of the highest bid and lowest asked prices on such day in
the domestic over-the-counter market as reported by the National Quotation
Bureau Incorporated or any similar successor organization. If at any time the
Common Stock is not listed on any securities exchange or quoted in the NASDAQ
System or the over-the-counter market, the Fair Market Value shall be the fair
value of the Common Stock determined in good faith by the Board.
"Options" shall have the meaning set forth in Article IV.
"Participant" shall mean any executive or other key employee or
director of the Company who has been selected to participate in the Plan by the
Board.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Change in Control" shall mean the occurrence of any of the following
events:
(a) The Company is merged or consolidated or reorganized with or into
another corporation or other legal person, and as a result of such merger,
consolidation or reorganization less than a majority of the combined voting
power of the then-outstanding securities of such corporation or person
immediately after such transaction are held in the aggregate by the holders of
securities entitled to vote generally in the election of Directors immediately
prior to such transaction;
(b) The Company sells or otherwise transfers all or substantially all of
its assets to any other corporation or other legal person, and less than a
majority of the combined voting power of the then-outstanding securities of such
corporation or person immediately after such sale or transfer is held in the
aggregate by the holders of Common Stock immediately prior to such sale or
transfer;
(c) There is a report filed on Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report), as promulgated in each case pursuant to the
Exchange Act, disclosing that any person (as the term "person" is used in
-2-
<PAGE>
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the
beneficial owner (as the term "beneficial owner" is defined in Rule 13d-3
promulgated under the Exchange Act or any successor rule or regulation
promulgated thereunder) of securities representing 50% or more of the Voting
Power; or
(d) If during any period of two consecutive years, individuals who at the
beginning of any such period constitute the Directors and any new Directors
whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the Directors then
still in office who either were Directors at the beginning of the period or
whose election was previously so approved cease for any reason to constitute a
majority of the Directors.
Notwithstanding the provisions of subparagraph (c) above, a "Change in Control"
shall not be deemed to have occurred for the purposes of this Agreement (i)
solely because MDCP either files or becomes obligated to file a report on
Schedule 13D (or any successor schedule or report), as promulgated pursuant to
the Exchange Act, disclosing beneficial ownership by it of securities
representing 50% or more of the Voting Power, (ii) solely because the Company or
any Company-sponsored employee stock ownership plan or other employee benefit
plan of the Company either files or becomes obligated to file a report or proxy
statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or
Schedule 14A (or any successor schedule, form or report or item therein), as
promulgated in each case pursuant to the Exchange Act, disclosing beneficial
ownership by it of securities representing 50% or more of the Voting Power or
otherwise, or because the Company reports that a change in control of the
Company has or may have occurred or will or may occur in the future by reason of
such beneficial ownership or (iii) solely because of a change in control of any
subsidiary (as the term "subsidiary" is defined in Section 424(f) of the Code)
of the Company.
"Director" shall mean a member of the Board.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and any successor statute.
"Initial Public Offering" shall mean the initial underwritten offering
of equity securities of the Company to the general public pursuant to a
registration statement filed with, and declared effective by, the Securities and
Exchange Commission pursuant to the Securities Act, provided that neither of the
following shall constitute an Initial Public Offering: (i) any issuance of
Common Stock as consideration or financing for a merger or acquisition or (ii)
any issuance of Common Stock, or rights to acquire Common Stock, to employees of
the Company as part of an incentive or compensation plan.
"MDCP" shall mean Madison Dearborn Capital Partners, L.P., a Delaware
Limited Partnership.
-3-
<PAGE>
"Securities Act" shall mean the Securities Act of 1933, as amended,
and any successor statute.
"Voting Power" shall mean, at any time, the votes relating to the
then-outstanding securities entitled to vote generally in the election of
Directors.
ARTICLE III
Administration
--------------
The Plan shall be administered by the Board. Subject to the
limitations of the Plan, the Board shall have the sole and complete authority
to: (i) select Participants, (ii) grant Options (as defined in Article IV below)
to Participants in such forms and amounts as it shall determine, (iii) impose
such limitations, restrictions and conditions upon such Options as it shall deem
appropriate, (iv) interpret the Plan and adopt, amend and rescind administrative
guidelines and other rules and regulations relating to the Plan, (v) correct any
defect or omission or reconcile any inconsistency in the Plan or in any Option
granted hereunder and (vi) make all other determinations and take all other
actions necessary or advisable for the implementation and administration of the
Plan. The Board's determinations on matters within its authority shall be
conclusive and binding upon the Participants, the Company and all other Persons.
All expenses associated with the administration of the Plan shall be borne by
the Company. The Board may, to the extent permissible by law, delegate any of
its authority hereunder to such persons as it deems appropriate.
ARTICLE IV
Limitation on Aggregate Shares
------------------------------
Limitation on Aggregate Shares. The number of shares of Common Stock
with respect to which options may be granted under the Plan (the "Options") and
which may be issued upon the exercise thereof shall not exceed, in the
aggregate, 17,060 shares (the "Share Limit"); provided, however, that (a) upon
the consummation of an Initial Public Offering, the Share Limit shall be
automatically reduced to a number of shares equal to the greater of (i) the
number of shares of Common Stock reserved for issuance in connection with
Options then outstanding under the Plan, or (ii) (x) 17,060, minus (y) the
aggregate number of shares then available, in the aggregate, under the Company's
1998 Equity and Performance Incentive Plan and 1998 Equity Plan for Non-Employee
Directors as provided therein and (b) that the Share Limit and the type and
aggregate number of shares which may be subject to Options shall be subject to
adjustment in accordance with the provisions of paragraph 6.7 below, and
provided further that to the extent any Options expire unexercised or are
canceled, terminated or forfeited in any manner without the issuance of Common
Stock thereunder, or if any Options are exercised and the shares of Common Stock
issued thereunder are repurchased by the Company, such shares shall again be
available under the Plan. The shares of Common Stock available under the Plan
may be either authorized and unissued shares, treasury shares or a combination
thereof, as the Board shall determine."
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<PAGE>
ARTICLE V
Awards
------
5.1 Options. The Board may grant Options to Participants in accordance
with this Article V.
5.2 Form of Option. Options granted under this Plan shall be nonqualified
stock options and are not intended to be "incentive stock options" within the
meaning of Section 422A of the Code or any successor provision.
5.3 Exercise Price. The option exercise price per share of Common Stock
shall be fixed by the Board at not less than 100% of the Fair Market Value of a
share of Common Stock on the date of grant.
5.4 Exercisability. Options shall be exercisable at such time or times as
the Board shall determine at or subsequent to grant.
5.5 Payment of Exercise Price. The option exercise price shall be payable
(i) in cash (including check, bank draft, money order or, following the
consummation of the Initial Public Offering, from the proceeds of sale through a
broker on a date satisfactory to the Company of some or all of the shares of
Common Stock to which the exercise relates), (ii) by transfer to the Company of
shares of Common Stock that, at the time of exercise, have been held by the
Participant for at least six months and, by themselves or together with cash,
have a Fair Market Value equal to the option exercise price, or (iii) in the
discretion of the Board, by delivery of a promissory note in accordance with
policies approved by the Board.
5.6 Terms of Options. The Board shall determine the term of each Option,
which term shall in no event exceed ten years from the date of grant.
ARTICLE VI
General Provisions
------------------
6.1 Conditions and Limitations on Exercise. Options may be made
exercisable in one or more installments, upon the happening of certain events
(including, without limitation, a Change in Control), upon the passage of a
specified period of time, upon the fulfillment of certain conditions or upon the
achievement by the Company of certain performance goals, as the Board shall
decide at or subsequent to grant.
6.2 Written Agreement. Each Option granted hereunder to a Participant
shall be embodied in a written agreement (an "Option Agreement"), which shall be
signed by the Participant and by the President of the Company for and in the
name and on behalf of the Company and shall include such terms and conditions as
the Board shall determine consistent with this Plan, including but not limited
to (i) the right of the Company, and
-5-
<PAGE>
such other Persons as the Board shall designate, to repurchase from each
Participant and his or her transferees all shares of Common Stock issued or
issuable to the Participant on the exercise of an Option in the event of his or
her termination of employment and (ii) holdback and other registration rights
restrictions in the event of a public registration of any equity securities of
the Company.
6.3 Listing, Registration and Compliance with Laws and Regulations.
Options shall be subject to the requirement that if at any time the Board shall
determine, in its discretion, that the listing, registration or qualification of
the shares subject to the Options upon any securities exchange or under any
state or federal securities or other law or regulation, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition to or in connection with the granting of the Options or the issuance
or purchase of shares thereunder, no Options may be granted or exercised, in
whole or in part, unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Board. The holders of such Options shall supply the Company
with such certificates, representations and information as the Company shall
request and shall otherwise cooperate with the Company in obtaining such
listing, registration, qualification, consent or approval. In the case of
officers and other Persons subject to Section 16(b) of the Securities Exchange
Act of 1934, as amended, the Board may at any time impose any limitations upon
the exercise of an Option that, in the Board's discretion, are necessary or
desirable in order to comply with such Section 16(b) and the rules and
regulations thereunder. If the Company, as part of an offering of securities or
otherwise, finds it desirable because of federal or state regulatory
requirements to reduce the period during which any Options may be exercised, the
Board, may, in its discretion and without the Participant's consent, so reduce
such period on not less than 15 days written notice to the holders thereof.
6.4 Nontransferability. Options may not be transferred other than by will
or the laws of descent and distribution and, during the lifetime of the
Participant, may be exercised only by such Participant (or his legal guardian or
legal representative). In the event of the death of a Participant, exercise of
Options granted hereunder shall be made only:
(i) by the executor or administrator of the estate of the deceased
Participant or the Person or Persons to whom the deceased Participant's
rights under the Option shall pass by will or the laws of descent and
distribution; and
(ii) to the extent that the deceased Participant was entitled thereto at
the date of his death, unless otherwise provided by the Board in such
Participant's Option Agreement.
6.5 Expiration of Options.
(a) Normal Expiration. In no event shall any Option be exercisable after
the date of expiration thereof (the "Expiration Date"), as determined by the
Board pursuant to
-6-
<PAGE>
paragraph 5.6 above.
(b) Early Expiration upon Termination of Employment. Except as otherwise
provided by the Board in the Option Agreement, any of a Participant's Options
that were not vested and exercisable on the date of the termination of such
Participant's employment or service as a director shall expire and be forfeited
as of such date, and any of a Participant's Options that were vested and
exercisable on the date of the termination of such Participant's employment or
service as a director shall expire and be forfeited 60 days after the date of
his termination, but in no event after the Expiration Date.
6.6 Withholding of Taxes. If the Company shall be required to withhold
any federal, state, local or foreign tax in connection with any exercise of
Options granted under this Plan, the Participant shall pay the tax or make
provisions that are satisfactory to the Company for the payment thereof.
Following the consummation of the Initial Public Offering, a Participant may
elect to satisfy all or any part of any such withholding obligation by
surrendering to the Company a portion of the Option Shares that are issued or
transferred to him upon the exercise of his Options, and the Option Shares so
surrendered by him shall be credited against any such withholding obligation at
the Fair Market Value thereof on the date of exercise.
6.7 Adjustments. The Board may make or provide for such adjustments in
the number of shares of Common Stock covered by outstanding Options granted
under this Plan, the option exercise prices applicable to any such Options, and
the kind of shares (including shares of another issuer) or other securities
covered thereby, as the Board may in good faith determine to be equitably
required in order to prevent dilution or enlargement of the rights of
Participants that otherwise would result from (a) any stock dividend, stock
split, combination of shares, recapitalization or other change in the capital
structure of the Company or (b) any merger, consolidation, spin-off, spin-out,
split-off, split-up, reorganization, partial or complete liquidation or other
distribution of assets or any other corporate transaction or event having an
effect similar to any of the foregoing, provided that the issuance by the
Company of shares of stock of any class, or options or securities exercisable or
convertible into shares of stock of any class, for cash or property or labor or
services, upon direct sale, or upon the exercise of rights or warrants to
subscribe therefor, or upon the exercise or conversion of other securities,
shall not affect, and no adjustment by reason thereof shall be made with respect
to, the number or price of shares of Common Stock then subject to any Options.
In the event of any such transaction or event, the Board may provide in
substitution for any or all outstanding Options under this Plan such alternative
consideration as the Board may in good faith determine to be equitable under the
circumstances and may require in connection therewith the surrender of all
Options so replaced. On or after the date of grant of any Options under this
Plan, the Board may provide in the Option Agreement that the holder of the
Options may elect to receive equivalent Options in respect of securities of the
surviving entity of any merger, consolidation or other transaction or event
having a similar effect, or the Board may provide that the holder will
automatically be entitled to receive such equivalent Options. The Board may
also make or provide for such adjustments in the number of shares of Common
Stock specified in Article IV of this
-7-
<PAGE>
Plan as the Board may in good faith determine to be appropriate in order to
reflect any transaction or event described in this paragraph 6.7.
6.8 Retention of Company's Rights. The Company's adoption of this Plan and
its issuance of Options to the Participants hereunder shall not interfere with
or limit in any way the right of the Company to terminate any Participant's
employment at any time and for any reason, nor confer upon any Participant any
right to continue in the employ of the Company for any period of time or to
continue his present (or any other) rate of compensation, and except as
otherwise provided under this Plan or by the Board in the Option Agreement, in
the event of any Participant's termination of employment for any reason, any
portion of such Participant's Options that were not previously vested and
exercisable shall expire and be forfeited as of the date of such termination. No
employee shall have a right to be selected as a Participant or, having been so
selected, to be selected again as a Participant.
6.9 Amendment, Suspension and Termination of Plan. The Board may suspend
or terminate the Plan or any portion thereof at any time and may amend it from
time to time in such respects as the Board may deem advisable; provided that (a)
no such amendment shall be made without stockholder approval to the extent such
approval is required by law, agreement or the rules of any exchange upon which
the Common Stock is listed, (b) prior to the consummation of the Initial Public
Offering, no such amendment, suspension or termination shall impair the rights
of any Participant under outstanding Options without the prior written consent
of a majority (based on the total number of shares of Common Stock subject to
Options held) of the Participants affected thereby, and (c) following the
consummation of the Initial Public Offering, no such amendment, suspension or
termination shall impair the rights of any Participant under outstanding Options
without the prior written consent of the Participant.
6.10 Amendment, Modification and Cancellation of Outstanding Options. The
Board may amend or modify any Option in any manner to the extent that the Board
would have had the authority under the Plan initially to grant such Option;
provided that (a) prior to the consummation of the Initial Public Offering, no
such amendment or modification shall impair the rights of any Participant under
any Option without the prior written consent of a majority (based on the total
number of shares of Common Stock subject to Options held) of the Participants
whose Options are so amended or modified, and (b) following the consummation of
the Initial Public Offering, no such amendment or modification shall impair the
rights of any Participant under any Option without the prior written consent of
the Participant.
6.11 Indemnification. In addition to such other rights of indemnification
as they may have as members of the Board, the members of the Board shall be
indemnified by the Company against all costs and expenses reasonably incurred by
them in connection with any action, suit or proceeding to which they or any of
them may be party by reason of any action taken or failure to act under or in
connection with the Plan or any Option granted thereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or
-8-
<PAGE>
paid by them in satisfaction of a judgment in any such action, suit or
proceeding; provided that any such Board member shall be entitled to the
indemnification rights set forth in this paragraph 6.11 only if such member has
acted in good faith and in a manner that such member reasonably believed to be
in or not opposed to the best interests of the Company and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that such
conduct was unlawful, and further provided that upon the institution of any such
action, suit or proceeding a Board member shall give the Company written notice
thereof and an opportunity, at its own expense, to handle and defend the same
before such Board member undertakes to handle and defend it on his own behalf.
* * * *
-9-
<PAGE>
EXHIBIT 10.8
FOCAL COMMUNICATIONS CORPORATION
1998 EQUITY AND PERFORMANCE INCENTIVE PLAN
1. PURPOSE. The purpose of the 1998 Equity and Performance Incentive
Plan is to attract and retain consultants, officers and other key employees of
Focal Communications Corporation, a Delaware corporation, and its Subsidiaries
and to provide to such persons incentives and rewards for superior performance.
2. DEFINITIONS. As used in this Plan,
"Appreciation Right" means a right granted pursuant to Section 5 of
this Plan and includes both Tandem Appreciation Rights and Free-Standing
Appreciation Rights.
"Base Price" means the price to be used as the basis for determining
the Spread upon the exercise of a Free-Standing Appreciation Right and a Tandem
Appreciation Right.
"Board" means the Board of Directors of the Company and, to the extent
of any delegation by the Board to a committee (or subcommittee thereof) pursuant
to Section 15 of this Plan, such committee (or subcommittee).
"Change in Control" shall have the meaning ascribed thereto in Section
11 of this Plan.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Common Shares" means the shares of Class A Common Stock, par value
$.01 per share, of the Company or any security into which such Common Shares may
be converted or exchanged by reason of any transaction or event of the type
referred to in Section 10 of this Plan.
"Company" means Focal Communications Corporation, a Delaware
corporation.
"Covered Employee" means a Participant who is, or is determined by the
Board to be likely to become, a "covered employee" within the meaning of Section
162(m) of the Code (or any successor provision).
"Date of Grant" means the date specified by the Board on which a grant
of Option Rights, Appreciation Rights, Performance Shares or Performance Units
or a grant or sale of Restricted Shares or Deferred Shares shall become
effective (which shall not be earlier than the date on which the Board takes
action with respect thereto).
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"Deferral Period" means the period of time during which Deferred
Shares are subject to deferral limitations under Section 7 of this Plan.
"Deferred Shares" means an award pursuant to Section 7 of this Plan of
the right to receive Common Shares at the end of a specified Deferral Period.
"Director" means a member of the Board of Directors of the Company.
"Eligible Transferee" means one or more (i) one or more members of the
Participant's immediate family (as the term "immediate family" is defined in
Rule 16a-1(e) promulgated under Section 16(a) of the Exchange Act (or any
successor rule to the same effect), as in effect from time to time), (ii) one or
more trusts established solely for the benefit of one or more members of the
Participant's immediate family, (iii) one or more corporations or limited
liability companies in which the only equity holders are members of the
Participant's immediate family or (iv) one or more partnerships in which the
only partners are members of the Participant's immediate family.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder, as such statute, rules and regulations
may be amended from time to time.
"Free-Standing Appreciation Right" means an Appreciation Right granted
pursuant to Section 5 of this Plan that is not granted in tandem with an Option
Right.
"Incentive Stock Options" means Option Rights that are intended to
qualify as "incentive stock options" under Section 422 of the Code or any
successor provision.
"Initial Public Offering" means the initial underwritten offering of
equity securities of the Company to the general public pursuant to a
registration statement filed with, and declared effective by, the Securities and
Exchange Commission pursuant to the Securities Act; provided that neither of the
following shall constitute an Initial Public Offering (i) any issuance of Common
Shares as consideration or financing for a merger or acquisition, or (ii) any
issuance of Common Shares or rights to acquire Common Shares to employees of the
Company as part of an incentive or compensation plan.
"Management Objectives" means the measurable performance objective or
objectives established pursuant to this Plan for Participants who have received
grants of Performance Shares or Performance Units (or, when so determined by the
Board, Option Rights, Appreciation Rights, Restricted Shares and dividend
credits) under this Plan. Management Objectives may be described in terms of
Company-wide objectives or objectives that are related to the performance of the
individual Participant or the Subsidiary, division, department, region or
function within the Company or Subsidiary in which the Participant is employed.
The Management Objectives may be made relative to the performance of other
corporations. The Management Objectives applicable to any award to a Covered
Employee shall be based on specified levels of or growth in one or more of the
following criteria:
(i) market value;
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(ii) book value;
(iii) market share;
(iv) operating profit;
(v) net income;
(vi) cash flow;
(vii) earnings, including earnings before interest, taxes,
depreciation and other non-cash items;
(viii) debt/capital ratio;
(ix) return on capital;
(x) return on equity;
(xi) costs or expenses;
(xii) net assets;
(xiii) return on assets;
(xiv) margins;
(xv) earnings per share growth;
(xvi) revenue growth;
(xvii) product volume growth, including growth in lines in service or
minutes of use; and
(xix) total return to shareholders.
If the Committee determines that a change in the business, operations,
corporate structure or capital structure of the Company, or the manner in which
the Company conducts its business, or other events or circumstances render the
Management Objectives unsuitable, the Committee may in its discretion modify
such Management Objectives or the related minimum acceptable level of
achievement, in whole or in part, as the Committee deems appropriate and
equitable; provided, however, the Committee shall not make any modification of
the Management Objectives or minimum acceptable level of achievement in the case
of a Covered Employee where such action would result in the loss of the
otherwise available exemption of the award under Section 162(m) of the Code.
"MDCP" means Madison Dearborn Capital Partners, L.P., a Delaware
limited partnership.
"Market Value per Share" means, as of any particular date, (i) the
closing sale price per Common Share as reported on the principal exchange on
which Common shares are then trading, if any, or, if applicable, the NASDAQ
National Market System, on the Date of Grant, or if there are no sales on such
day, on the next preceding trading day during which a sale occurred, or (ii) if
clause (i) does not apply, the fair market value of the Common Shares as
determined by the Board.
"Non-Employee Director" means a person who is a "non-employee
director" of the Company within the meaning of Rule 16b-3.
"Optionee" means the optionee named in an agreement evidencing an
outstanding Option Right.
"Option Price" means the purchase price payable upon exercise of an
Option Right.
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"Option Right" means the right to purchase Common Shares upon exercise
of an option granted pursuant to Section 4 of this Plan.
"Outside Director" means a person who is an "outside director" of the
Company within the meaning of Section 162(m) of the Code.
"Participant" means a person who is selected by the Board to receive
benefits under this Plan and who is at the time a consultant, an officer or
other key employee of the Company or any one or more of its Subsidiaries or who
has agreed to commence serving in any of such capacities.
"Performance Period" means, in respect of a Performance Share or
Performance Unit, a period of time established pursuant to Section 8 of this
Plan within which the Management Objectives relating to such Performance Share
or Performance Unit are to be achieved.
"Performance Share" means a bookkeeping entry that records the
equivalent of one Common Share awarded pursuant to Section 8 of this Plan.
"Performance Unit" means a bookkeeping entry that records a unit
equivalent to $1.00 awarded pursuant to Section 8 of this Plan.
"Plan" means this Focal Communications Corporation 1998 Equity and
Performance Incentive Plan.
"Reload Option Rights" means additional Option Rights granted
automatically to an Optionee upon the exercise of Option Rights pursuant to
Section 4(g) of this Plan.
"Restricted Shares" means Common Shares granted or sold pursuant to
Section 6 of this Plan as to which neither the substantial risk of forfeiture
nor the restrictions on transfer referred to in Section 6 of this Plan have
expired.
"Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act (or
any successor rule to the same effect), as in effect from time to time.
"Securities Act" means the Securities Act of 1933, and the rules and
regulations promulgated thereunder, as amended from time to time.
"Spread" means the excess of the Market Value per Share on the date
when an Appreciation Right is exercised, or on the date when Option Rights are
surrendered in payment of the Option Price of other Option Rights, over the
Option Price or Base Price provided for in the related Option Right or Free-
Standing Appreciation Right, respectively.
"Subsidiary" means a corporation, company or other entity (i) more
than 50 percent of whose outstanding shares or securities (representing the
right to vote for the election of directors or other managing authority) are, or
(ii) which does not have outstanding shares or securities (as may be the case in
a partnership, joint venture or unincorporated association) but more than 50
percent
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of whose ownership interest representing the right generally to make decisions
for such other entity is, now or hereafter, owned or controlled, directly or
indirectly, by the Company except that, for the purposes of determining whether
any person may be a Participant for the purposes of any grant of Incentive Stock
Options, "Subsidiary" means any corporation in which the Company at the time of
grant, owns or controls, directly or indirectly, more than 50 percent of the
total combined voting power represented by all classes of stock issued by such
corporation.
"Tandem Appreciation Right" means an Appreciation Right granted
pursuant to Section 5 of this Plan that is granted in tandem with an Option
Right.
"Tax-Qualified Option" means an Option Right that is intended to
qualify under particular provisions of the Code, including but not limited to an
Incentive Stock Option.
"Termination Date" means the tenth anniversary of the date on which
this Plan is first approved by the stockholders of the Company.
"Voting Power" means at any time, the total votes relating to the
then-outstanding securities entitled to vote generally in the election of
Directors.
3. SHARES AVAILABLE UNDER THE PLAN. (a) Subject to adjustment as provided
in Section 3(b) and Section 10 of this Plan, the number of Common Shares that
may be issued or transferred (i) upon the exercise of Option Rights or
Appreciation Rights, (ii) as Restricted Shares and subsequently released from
substantial risks of forfeiture, (iii) as Deferred Shares, (iv) in payment of
Performance Shares or Performance Units that have been earned, or (v) in payment
of dividend equivalents paid with respect to awards made under this Plan, shall
not in the aggregate exceed a number of Common Shares equal to (x) 11,500, minus
(y) [INSERT NUMBER OF COMMON SHARES AUTHORIZED BY THE BOARD IN AUGUST 1998 FOR
THE MEGA-GRANTS UNDER THE 1997 PLAN], minus [INSERT THE NUMBER OF COMMON SHARES
NOW REMAINING UNDER THE 1997 PLAN (PRE-AMENDMENT) FOR NEW OPTION GRANTS (I.E.,
5,260 - X)], plus (z) any Common Shares described in Section 3(b). Such Common
Shares may be shares of original issuance or treasury shares or a combination
thereof.
(b) The number of Common Shares available in Section 3(a) above shall
be adjusted to account for Common Shares relating to awards that expire, are
forfeited or are transferred, surrendered or relinquished upon the payment of
any Option Price by the transfer to the Company of Common Shares or upon
satisfaction of any withholding amount. Upon payment in cash of the benefit
provided by any award granted under this Plan, any Common Shares that were
covered by that award shall again be available for issuance or transfer
hereunder.
(c) Notwithstanding anything in this Section 3 or elsewhere in this
Plan to the contrary and subject to adjustment as provided in Section 10 of this
Plan, (i) the aggregate number of Common Shares actually issued or transferred
by the Company upon the exercise of Incentive Stock Options shall not exceed
5,000 Common Shares; (ii) no Participant shall be granted Option Rights and
Appreciation Rights for more than an aggregate of 1,000 Common Shares during any
calendar year; and (iii) the number of Common Shares issued as Restricted Shares
shall not in the aggregate exceed 2,500.
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(d) Notwithstanding any other provision of this Plan to the contrary,
in no event shall any Participant in any calendar year receive an
award of Performance Shares or Performance Units having an aggregate
maximum value as of their respective Dates of Grant in excess of
$5,000,000.
4. OPTION RIGHTS. The Board may from time to time authorize grants to
Participants of options to purchase Common Shares. Each such grant may utilize
any or all of the authorizations, and shall be subject to all of the
requirements, contained in the following provisions:
(a) Each grant shall specify the number of Common Shares to which it
pertains, subject to the limitations set forth in Section 3 of this Plan.
(b) Each grant shall specify an Option Price per share, which may not
be less than the Market Value per Share on the Date of Grant.
(c) Each grant shall specify the form of consideration to be paid in
satisfaction of the Option Price and the manner of payment of such
consideration, which may include (i) cash in the form of currency or check or
other cash equivalent acceptable to the Company, (ii) by the tender to the
Company of Common Shares owned by the Participant and registered in the name of
the Participant having an aggregate fair market value on the date of exercise
equal to the total Option Price, such fair market value to be determined based
on the Market Value per Share on the date of exercise, (iii) by delivery of
irrevocable instructions to a financial institution or broker to deliver
promptly to the Company sale or loan proceeds with respect to the Common Shares
sufficient to pay the total Option Price, (iv) through the written election of
the Optionee to have Common Shares withheld by the Company from the Common
Shares otherwise to be received, with such withheld shares having an aggregate
fair market value on the date of exercise equal to the total Option Price of the
shares being purchased, and (v) any combination of the foregoing methods of
payment.
(d) The Board may determine, at or after the Date of Grant, that
payment of the Option Price of any Option Right (other than an Incentive Stock
Option) may also be made in whole or in part in the form of Restricted Shares or
other Common Shares that are forfeitable or subject to restrictions on transfer,
Deferred Shares, Performance Shares (based, in each case, on the Market Value
per Share on the date of exercise), other Option Rights (based on the Spread on
the date of exercise) or Performance Units. Unless otherwise determined by the
Board at or after the Date of Grant, whenever any Option Price is paid in whole
or in part by means of any of the forms of consideration specified in this
Section 4(d), the Common Shares received upon the exercise of the Option Rights
shall be subject to such risks of forfeiture or restrictions on transfer as may
correspond to any that apply to the consideration surrendered, but only to the
extent determined with respect to the consideration surrendered, of (i) the
number of shares or Performance Shares, (ii) the Spread of any unexercisable
portion of Option Rights, or (iii) the stated value of Performance Units.
(e) Any grant may provide for deferred payment of the Option Price
from the proceeds of sale through a broker on a date satisfactory to the Company
of some or all of the Common Shares to which such exercise relates.
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<PAGE>
(f) Any grant may provide for payment of the Option Price, at the
election of the Optionee, in installments (with or without interest) upon terms
determined by the Board.
(g) On or after the Date of Grant of any Option Rights, the Board may
provide for the automatic grant of Reload Option Rights to an Optionee upon the
exercise of Option Rights (including Reload Option Rights) using Common Shares
or other consideration specified in Section 4(d). Reload Option Rights shall
cover up to the number of Common Shares, Deferred Shares, Option Rights or
Performance Shares (or the number of Common Shares having a value equal to the
value of any Performance Units) surrendered to the Company upon any such
exercise in payment of the Option Price or to meet any withholding obligations.
Reload Options may have an Option Price that is less than the applicable Market
Value per Share at the time of exercise and shall be on such other terms as may
be specified by the Directors, which may be the same as or different from those
of the original Option Rights.
(h) Successive grants may be made to the same Participant regardless
of whether any Option Rights previously granted to such Participant remain
unexercised.
(i) Each grant shall specify the period or periods of continuous
service by the Optionee with the Company or any Subsidiary or shall specify such
different or additional conditions as the Board may determine (including the
achievement of Management Objectives), that must be satisfied before the Option
Rights or installments thereof will become exercisable and may provide for the
earlier exercise of such Option Rights in the event of a Change in Control or
other events.
(j) Option Rights granted under this Plan may be (i) options,
including, without limitation, Incentive Stock Options, that are intended to
qualify under particular provisions of the Code, (ii) options that are not
intended so to qualify, or (iii) combinations of the foregoing.
(k) On or after the Date of Grant of any Option Rights (other than
Incentive Stock Options), the Board may provide for the payment of dividend
equivalents to the Optionee on a current, deferred or contingent basis or may
provide that any such equivalents shall be credited against the Option Price.
(l) The exercise of an Option Right shall result in the cancellation
on a share-for-share basis of any Tandem Appreciation Right authorized under
Section 5 of this Plan.
(m) No Option Right shall be exercisable more than 10 years from the
Date of Grant.
(n) Each grant of Option Rights shall be evidenced by an agreement
executed on behalf of the Company by an officer thereof and delivered to the
Optionee and containing such terms and provisions as the Board may approve
consistent with this Plan.
5. APPRECIATION RIGHTS. (a) The Board may authorize the granting of (i)
Tandem Appreciation Rights to any Optionee in respect of Option Rights granted
under this Plan, and (ii) Free-Standing Appreciation Rights to any Participant.
A Tandem Appreciation Right shall be a right of the Optionee, exercisable by
surrender of the related Option Right, to receive from the
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<PAGE>
Company an amount determined by the Board, which shall be expressed as a
percentage of the Spread (not exceeding 100 percent) at the time of exercise.
Tandem Appreciation Rights may be granted at any time prior to the exercise or
termination of the related Option Rights; provided, however, that a Tandem
Appreciation Right awarded in respect of an Incentive Stock Option must be
granted concurrently with the Incentive Stock Option. A Free-Standing
Appreciation Right shall be a right of the Participant to receive from the
Company an amount determined by the Board, which shall be expressed as a
percentage of the Spread (not exceeding 100 percent) at the time of exercise.
(b) Each grant of Appreciation Rights may utilize any or all of the
authorizations, and shall be subject to all of the requirements, contained in
the following provisions:
(i) Any grant may specify that the amount payable upon exercise
of an Appreciation Right may be paid by the Company in cash, in Common
Shares or in any combination thereof and may either grant to the
Participant or retain in the Board the right to elect among those
alternatives.
(ii) Any grant may specify that the amount payable upon exercise
of an Appreciation Right may not exceed a maximum specified by the Board at
the Date of Grant.
(iii) Any grant may specify waiting periods before exercise and
permissible exercise dates or periods.
(iv) Any grant may specify that the Appreciation Right may be
exercised only in the event of, or earlier in the event of, a Change in
Control.
(v) Any grant may provide for the payment to the Participant of
dividend equivalents thereon in cash or Common Shares on a current,
deferred or contingent basis.
(vi) Any grant may specify Management Objectives that must be
achieved as a condition of the exercise of the subject Appreciation Rights.
(vii) Each grant of Appreciation Rights shall be evidenced by an
agreement executed on behalf of the Company by an officer thereof and
delivered to the Participant, which agreement shall describe such
Appreciation Rights, identify any related Option Rights, state that such
Appreciation Rights are subject to all of the terms and conditions of this
Plan, and contain such other terms and provisions as the Board may approve
consistent with this Plan.
(c) Any grant of Tandem Appreciation Rights shall provide that the
Tandem Appreciation Rights may be exercised only at a time when the related
Option Rights are also exercisable and the Spread is positive and by surrender
of the related Option Rights for cancellation.
(d) Regarding Free-Standing Appreciation Rights only:
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(i) Each grant shall specify in respect of each Free-Standing
Appreciation Right a Base Price, which shall be equal to or greater or
less than the Market Value per Share on the Date of Grant;
(ii) Successive grants may be made to the same Participant
regardless of whether any Free-Standing Appreciation Rights previously
granted to the Participant remain unexercised; and
(iii) No Free-Standing Appreciation Right granted under this
Plan may be exercised more than 10 years from the Date of Grant.
6. RESTRICTED SHARES. The Board may authorize the granting or sale of
Restricted Shares to Participants. Each such grant or sale may utilize any or
all of the authorizations, and shall be subject to all of the requirements,
contained in the following provisions:
(a) Each such grant or sale shall constitute an immediate transfer of
the ownership of Common Shares to the Participant in consideration of the
performance of services, entitling such Participant to voting, dividend and
other ownership rights, subject in each case to the substantial risk of
forfeiture and restrictions on transfer hereinafter referred to.
(b) Each such grant or sale may be made without additional
consideration or in consideration of a payment by such Participant that is less
than Market Value per Share at the Date of Grant.
(c) Each such grant or sale shall provide that the Restricted Shares
covered by such grant or sale shall be subject to a "substantial risk of
forfeiture" within the meaning of Section 83 of the Code for a period to be
determined by the Board at the Date of Grant and may provide for the earlier
lapse of such substantial risk of forfeiture in the event of a Change in Control
or other events.
(d) Each such grant or sale of Restricted Shares shall provide that
during the period for which such substantial risk of forfeiture is to continue,
the transferability of the Restricted Shares shall be prohibited or restricted
in the manner and to the extent prescribed by the Board at the Date of Grant
(which restrictions may include, but shall not be limited to, rights of
repurchase or first refusal in the Company or provisions subjecting the
Restricted Shares to a continuing substantial risk of forfeiture in the hands of
any transferee).
(e) Any grant of Restricted Shares may specify Management Objectives
that, if achieved, will result in termination or early termination of the risk
of forfeiture and restrictions on transfer applicable to the subject Restricted
Shares. Each grant may specify in respect of any such Management Objectives a
minimum acceptable level of achievement and may set forth a formula for
determining the number of Restricted Shares on which restrictions will terminate
if performance is at or above such minimum level but falls short of full
achievement of the specified Management Objectives.
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(f) Any such grant or sale of Restricted Shares may require that any
or all dividends or other distributions paid on the Restricted Shares during the
period of a risk of forfeiture and restrictions on transfer be automatically
deferred and reinvested in additional Restricted Shares, which may be subject to
the same restrictions as the underlying award.
(g) Each grant or sale of Restricted Shares shall be evidenced by an
agreement executed on behalf of the Company by any officer and delivered to the
Participant and shall contain such terms and provisions as the Board may approve
consistent with this Plan. Unless otherwise directed by the Board, all
certificates representing Restricted Shares shall be held in custody by the
Company, together with a stock power or powers endorsed in blank by the
Participant in whose name such certificates are registered, until all
restrictions thereon shall have lapsed.
7. DEFERRED SHARES. The Board may authorize the granting or sale of
Deferred Shares to Participants. Each such grant or sale may utilize any or all
of the authorizations, and shall be subject to all of the requirements,
contained in the following provisions:
(a) Each such grant or sale shall constitute the agreement by the
Company to deliver Common Shares to the Participant in the future in
consideration of the performance of services and subject to the fulfillment of
such conditions during the Deferral Period as the Board may specify.
(b) Each such grant or sale may be made without additional
consideration or in consideration of a payment by the Participant that is less
than the Market Value per Share at the Date of Grant.
(c) Each such grant or sale shall be subject to a Deferral Period as
determined by the Board at the Date of Grant, and may provide for the earlier
lapse or other modification of such Deferral Period in the event of a Change in
Control or other event.
(d) During the Deferral Period, a Participant shall not have any
rights of ownership in the Deferred Shares, shall not have any right to vote the
Deferred Shares and, except as provided in Section 9(c) of this Plan, shall not
have any right to transfer any rights under his or her award, but at or after
the Date of Grant, the Board may authorize the payment of dividend equivalents
on the Deferred Shares on a current, deferred or contingent basis, in either
cash or additional Common Shares.
(e) Each grant or sale of Deferred Shares shall be evidenced by an
agreement executed on behalf of the Company by any officer and delivered to the
Participant and shall contain such terms and provisions as the Board may approve
consistent with this Plan.
8. PERFORMANCE SHARES AND PERFORMANCE UNITS. The Board may authorize the
granting of Performance Shares and Performance Units that will become payable to
a Participant upon achievement of specified Management Objectives. Each such
grant may utilize any or all of the authorizations, and shall be subject to all
of the requirements, contained in the following provisions:
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(a) Each grant shall specify the number of Performance Shares or
Performance Units to which it pertains, which may be subject to adjustment to
reflect changes in compensation or other factors; provided, however, that no
such adjustment shall be made in the case of a Covered Employee where such
action would result in the loss of the otherwise available exemption of the
award under Section 162(m) of the Code.
(b) The Performance Period with respect to each Performance Share or
Performance Unit shall be such period of time commencing with the Date of Grant,
as shall be determined by the Board at the time of grant, which may be subject
to earlier lapse or other modification in the event of a Change in Control or
other events as set forth in the agreement specified in Section 8(g).
(c) Each grant shall specify Management Objectives that, if achieved,
will result in payment or early payment of the award, and each grant may specify
in respect of the specified Management Objectives a minimum acceptable level of
achievement and shall set forth a formula for determining the number of
Performance Shares or Performance Units that will be earned if performance is at
or above the minimum level but falls short of full achievement of the specified
Management Objectives. The grant shall specify that, before the Performance
Shares or Performance Units shall be earned and paid, the Board must certify
that the specified Management Objectives have been satisfied.
(d) Each grant shall specify the time and manner of payment of
Performance Shares or Performance Units that have been earned. Any grant may
specify that the amount payable with respect thereto may be paid by the Company
in cash or Common Shares or any combination thereof and may either grant to the
Participant or retain in the Board the right to elect among those alternatives.
(e) Any grant of Performance Shares may specify that the amount
payable with respect thereto may not exceed a maximum specified by the Board at
the Date of Grant. Any grant of Performance Units may specify that the amount
payable or the number of Common Shares issuable or transferable with respect
thereto may not exceed maximums specified by the Board at the Date of Grant.
(f) At or after the Date of Grant of Performance Shares, the Board may
provide for the payment of dividend equivalents to the holder thereof on a
current, deferred or contingent basis, in either cash or additional Common
Shares.
(g) Each grant of Performance Shares or Performance Units shall be
evidenced by an agreement executed on behalf of the Company by any officer and
delivered to the Participant, which agreement shall state that such Performance
Shares or Performance Units are subject to all the terms and conditions of this
Plan and shall contain such other terms and provisions as the Board may approve
consistent with this Plan.
9. TRANSFERABILITY. (a) Except as otherwise determined by the Board, but
subject to Section 9(c), no Option Right, Appreciation Right or other derivative
security granted under the Plan shall be transferable by a Participant other
than by will or the laws of descent and distribution.
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Except as otherwise determined by the Board, Option Rights and Appreciation
Rights shall be exercisable during the Optionee's lifetime only by him or her or
by his or her guardian or legal representative.
(b) The Board may specify at the Date of Grant that part or all of the
Common Shares that are to be issued or transferred by the Company upon the
exercise of Option Rights or Appreciation Rights, upon the termination of the
Deferral Period applicable to Deferred Shares or upon payment under any grant of
Performance Shares or Performance Units or are no longer subject to the
substantial risk of forfeiture and restrictions on transfer referred to in
Section 6 of this Plan, shall be subject to further restrictions on transfer.
(c) Notwithstanding the provisions of Section 9(a), but subject to
prior authorization by the Board, Option Rights (other than Incentive Stock
Options), Appreciation Rights, Restricted Shares, Deferred Shares, Performance
Shares and Performance Units shall be transferable by a Participant to an
Eligible Transferee, without payment of consideration therefor; provided,
however, that (i) no such transfer shall be effective unless reasonable prior
notice thereof is delivered to the Company and such transfer is thereafter
effected in accordance with any terms and conditions that shall have been made
applicable thereto by the Company or the Board and (ii) any such transferee
shall be subject to the same terms and conditions hereunder as the Participant.
10. ADJUSTMENTS. The Board shall make or provide for such adjustments in
the numbers of Common Shares covered by outstanding Option Rights, Appreciation
Rights, Deferred Shares, and Performance Shares granted hereunder, in the Option
Price and Base Price provided in outstanding Option Rights and Appreciation
Rights, and in the kind of shares or other securities covered thereby, as the
Board, in its sole discretion, exercised in good faith, may determine is
equitably required to prevent dilution or expansion of the rights of
Participants or Optionees that otherwise would result from (a) any stock
dividend, stock split, combination of shares, recapitalization or other change
in the capital structure of the Company, or (b) any merger, consolidation, spin-
off, split-off, spin-out, split-up, reorganization, partial or complete
liquidation or other distribution of assets, issuance of rights or warrants to
purchase securities, or (c) any other corporate transaction or event having an
effect similar to any of the foregoing. In the event of any such transaction or
event, the Board, in its discretion, may provide in substitution for any or all
outstanding awards under this Plan such alternative consideration as it, in good
faith, may determine to be equitable in the circumstances and may require in
connection therewith the surrender of all awards so replaced. The Board shall
also make or provide for such adjustments in the numbers of shares specified in
Section 3 of this Plan as the Board in its sole discretion, exercised in good
faith, may determine is appropriate to reflect any transaction or event
described in this Section 10; provided, however, that any such adjustment to the
number specified in Section 3(c)(i) shall be made only if and to the extent that
such adjustment would not cause any Option Right intended to qualify as an
Incentive Stock Option to fail so to qualify.
11 CHANGE IN CONTROL. For the purposes of this Plan, except as may be
otherwise prescribed by the Board in an agreement evidencing a grant or award
made under the Plan, a "Change in Control" shall mean if at any time any of the
following events shall have occurred:
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(a) The Company is merged or consolidated or reorganized with or into
another corporation or other legal person, and as a result of such merger,
consolidation or reorganization less than a majority of the combined voting
power of the then-outstanding securities of such corporation or person
immediately after such transaction are held in the aggregate by the holders of
securities entitled to vote generally in the election of Directors immediately
prior to such transaction;
(b) The Company sells or otherwise transfers all or substantially all
of its assets to any other corporation or other legal person, and less than a
majority of the combined voting power of the then-outstanding securities of such
corporation or person immediately after such sale or transfer is held in the
aggregate by the holders of Common Stock immediately prior to such sale or
transfer;
(c) There is a report filed on Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report), as promulgated in each case pursuant to the
Exchange Act, disclosing that any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the
beneficial owner (as the term "beneficial owner" is defined in Rule 13d-3
promulgated under the Exchange Act or any successor rule or regulation
promulgated thereunder) of securities representing 50% or more of the Voting
Power; or
(d) If during any period of two consecutive years, individuals who at
the beginning of any such period constitute the Directors and any new Directors
whose election or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the Directors then still in office
who either were Directors at the beginning of the period or whose election was
previously so approved cease for any reason to constitute a majority of the
Directors.
Notwithstanding the provisions of subparagraph (c) above, a "Change in
Control" shall not be deemed to have occurred for the purposes of this Agreement
(i) solely because MDCP either files or becomes obligated to file a report on
Schedule 13D (or any successor schedule or report), as promulgated pursuant to
the Exchange Act, disclosing beneficial ownership by it of securities
representing 50% or more of the Voting Power, (ii) solely because the Company or
any Company-sponsored employee stock ownership plan or other employee benefit
plan of the Company either files or becomes obligated to file a report or proxy
statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or
Schedule 14A (or any successor schedule, form or report or item therein), as
promulgated in each case pursuant to the Exchange Act, disclosing beneficial
ownership by it of securities representing 50% or more of the Voting Power or
otherwise, or because the Company reports that a change in control of the
Company has or may have occurred or will or may occur in the future by reason of
such beneficial ownership or (iii) solely because of a change in control of any
subsidiary (as the term "subsidiary" is defined in Section 424(f) of the Code)
of the Company.
12 FRACTIONAL SHARES. The Company shall not be required to issue any
fractional Common Shares pursuant to this Plan. The Board may provide for the
elimination of fractions or for the settlement of fractions in cash.
13
<PAGE>
13 WITHHOLDING TAXES. To the extent that the Company is required to
withhold federal, state, local or foreign taxes in connection with any payment
made or benefit realized by a Participant or other person under this Plan, and
the amounts available to the Company for such withholding are insufficient, it
shall be a condition to the receipt of such payment or the realization of such
benefit that the Participant or such other person make arrangements satisfactory
to the Company for payment of the balance of such taxes required to be withheld,
which arrangements (in the discretion of the Board) may include relinquishment
of a portion of such benefit. The Company and a Participant or such other person
may also make similar arrangements with respect to the payment of any taxes with
respect to which withholding is not required.
14 FOREIGN EMPLOYEES. In order to facilitate the making of any grant or
combination of grants under this Plan, the Board may provide for such special
terms for awards to Participants who are foreign nationals or who are employed
by the Company or any Subsidiary outside of the United States of America as the
Board may consider necessary or appropriate to accommodate differences in local
law, tax policy or custom. Moreover, the Board may approve such supplements to
or amendments, restatements or alternative versions of this Plan as it may
consider necessary or appropriate for such purposes, without thereby affecting
the terms of this Plan as in effect for any other purpose, and the Secretary or
other appropriate officer of the Company may certify any such document as having
been approved and adopted in the same manner as this Plan. No such special
terms, supplements, amendments or restatements, however, shall include any
provisions that are inconsistent with the terms of this Plan as then in effect
unless this Plan could have been amended to eliminate such inconsistency without
further approval by the stockholders of the Company.
15 ADMINISTRATION OF THE PLAN. (a) (i) Subject to subsection (ii) of
this Section 15(a), this Plan shall be administered by the Board, which may from
time to time delegate all or any part of its authority under this Plan to a
committee of the Board (or subcommittee thereof) consisting of not less than two
Non-Employee Directors appointed by the Board.
(ii) Awards of Option Rights and Appreciation Rights are, and certain
awards of Restricted Shares, Performance Shares and Performance Units may be,
intended to qualify as performance-based compensation under Section 162(m) of
the Code. The grant of such awards, and the administration thereof and any
determinations to be made in connection therewith, shall be carried out only by
a committee of the Board (or subcommittee thereof) consisting of not less than
two Outside Directors appointed by the Board. Such committee shall grant such
awards in a manner consistent with the rules governing performance-based
compensation under Section 162(m) of the Code.
(b) To the extent of any such delegation, references in this Plan to
the Board shall be deemed to be references to any such committee (or
subcommittee). The interpretation and construction by the Board of any provision
of this Plan or of any agreement, notification or document evidencing the grant
of Option Rights, Appreciation Rights, Restricted Shares, Deferred Shares,
Performance Shares or Performance Units and any determination by the Board
pursuant to any provision of this Plan or of any such agreement, notification or
document shall be final and conclusive. No member of the Board shall be liable
for any such action or determination made in good faith.
14
<PAGE>
16 AMENDMENTS, ETC. (a) The Board may at any time and from time to time
amend this Plan in whole or in part; provided, however, any amendment that must
be approved by the stockholders of the Corporation in order to comply with
applicable law or the rules of the principal exchange on which the Common Shares
are then trading (or, if applicable, the NASDAQ National Market System) shall
not be effective unless and until such approval shall have been obtained. The
submission of this Plan or any amendment hereto for stockholder approval shall
not be construed to limit the Company's authority to offer similar or dissimilar
benefits under other plans without stockholder approval.
(b) With the concurrence of the affected Optionee, the Board may
cancel any agreement evidencing Option Rights granted under this Plan. In the
event of any such cancellation, the Board may authorize the granting of new
Option Rights hereunder, which may or may not cover the same number of Common
Shares as had been covered by the canceled Option Rights, at such Option Price,
in such manner and subject to such other terms, conditions and discretion as
would have been permitted under this Plan had the canceled Option Rights not
been granted.
(c) The Board also may permit Participants to elect to defer the
issuance of Common Shares or the settlement of awards in cash under the Plan
pursuant to such rules, procedures or programs as it may establish for the
purposes of this Plan. The Board may also provide that deferred issuances and
settlements include the payment or crediting of dividend equivalents or interest
on the deferral amounts.
(d) The Board may condition the grant of any award or combination of
awards authorized under this Plan on the surrender or deferral by the
Participant of his or her right to receive a cash bonus or other compensation
otherwise payable by the Company or a Subsidiary to the Participant.
(e) In the event of termination of employment by reason of death,
disability or normal or early retirement, or in the case of hardship or other
special circumstances, of a Participant who holds an Option Right or
Appreciation Right not immediately and fully exercisable, or any Restricted
Shares as to which the substantial risk of forfeiture or the restrictions on
transfer have not lapsed, or any Deferred Shares as to which the Deferral Period
has not been completed, or any Performance Shares or Performance Units that have
not been fully earned, or who holds Common Shares subject to any transfer
restriction imposed pursuant to Section 9(b) of this Plan, the Board may in its
sole discretion accelerate the time at which such Option Right or Appreciation
Right may be exercised or the time at which such substantial risk of forfeiture
or restrictions on transfer will lapse or the time when such Deferral Period
will end or the time at which such Performance Shares or Performance Units will
be deemed to have been fully earned or the time when such transfer restriction
will terminate or may waive any other limitation or requirement under any such
award.
(f) This Plan shall not confer upon any Participant any right with
respect to continuance of employment or other service with the Company or any
Subsidiary and shall not interfere in any way with any right the Company or any
Subsidiary would otherwise have to terminate any Participant's employment or
other service at any time.
15
<PAGE>
(g) To the extent that any provision of this Plan would prevent any
Option Right that was intended to qualify as an Incentive Stock Option from
qualifying as such, such provision shall be null and void with respect to such
Option Right; provided, however, that such provision shall remain in effect for
other Option Rights, and there shall be no further effect on any provision of
this Plan.
17 EFFECTIVE DATE AND TERMINATION. (a) The effective date of this Plan
shall be the date immediately prior to the date on which the Company consummates
its Initial Public Offering.
(b) No grant shall be made under this Plan after the Termination Date,
but all grants made on or before the Termination Date shall continue in effect
thereafter subject to the terms thereof and the terms of this Plan.
16
<PAGE>
EXHIBIT 10.9
1998 EQUITY PLAN FOR NON-EMPLOYEE DIRECTORS
OF FOCAL COMMUNICATIONS CORPORATION
1. PURPOSE. The purposes of the Plan are (1) to promote the growth
and long-term success of Focal Communications Corporation, a Delaware
corporation (the "Company"), by offering Non-Employee Directors the ability to
acquire Common Stock of the Company, and (2) to enable the Company to attract
and retain qualified persons to serve as Non-Employee Directors, which services
are considered essential to the long-term success of the Company, by offering
them an opportunity to own Common Stock of the Company.
2. DEFINITIONS. In addition to the other terms defined elsewhere
herein, wherever the following terms are used in this Plan with initial capital
letters, they have the meanings specified below, unless the context clearly
indicates otherwise.
"ACCOUNTING PERIOD" means each calendar quarter of the Company, such
quarters beginning on January 1, April 1, July 1 and October 1 of each year.
"AWARD" means an award of an Option Right under this Plan.
"BOARD" means the Board of Directors of the Company.
"CALENDAR YEAR" means the period beginning on January 1 of each year
and ending on December 31 of each year.
"CODE" means the Internal Revenue Code of 1986, as amended from time
to time.
"COMMON STOCK" means the Class A Common Stock, par value $0.01 per
share, of the Company, and any security into which such Common Stock may be
converted or for which such Common Stock may be exchanged by reason of any
transaction or event of the type described in Section 7 of this Plan.
"COMPANY" has the meaning set forth in Section 1, and includes its
successors.
"DATE OF AWARD" means the date specified by the Board on which an
Award becomes effective, which shall not be earlier than the date on which the
Board takes action with respect thereto.
"EMPLOYEE" means any officer or other employee of the Company or of
any corporation which is then a Subsidiary.
<PAGE>
"INITIAL PUBLIC OFFERING" means the initial underwritten offering of
equity securities of the Company to the general public pursuant to a
registration statement filed with, and declared effective by, the Securities and
Exchange Commission pursuant to the Securities Act of 1933; provided that
neither of the following shall constitute an Initial Public Offering (i) any
issuance of Common Stock as consideration or financing for a merger or
acquisition, or (ii) any issuance of Common Stock or rights to acquire Common
Stock to employees of the Company as part of an incentive or compensation plan.
"ISSUANCE DATE" has the meaning set forth in Section 5.
"MEETING FEES" means the compensation payable to a Non-Employee
Director with regard to the number of Board or Committee meetings attended, or
Committee positions held, as determined by the Board from time to time.
"MARKET VALUE PER SHARE" means either (a) the closing price of a share
of Common Stock as reported on the principal exchange on which Common Stock is
then trading (or if applicable, the NASDAQ National Market System) on the date
as of which such value is being determined, or, if there are no reported
transactions for such date, on the next preceding date for which transactions
were reported, as published in the Midwest Edition of The Wall Street Journal,
-----------------------
or (b) if clause (a) does not apply, the fair market value of a share of Common
Stock as determined by the Board from time to time.
"NON-EMPLOYEE DIRECTOR" means a member of the Board who is not (a) an
Employee, or (b) an employee, affiliate or representative of Frontenac VI, L.P.,
Madison Dearborn Capital Partners, L.P. or Battery Ventures, III, L.P., or any
of their respective affiliates.
"OPTIONEE" means a Non-Employee Director to whom an Option Right is
awarded under this Plan.
"OPTION PRICE" means the purchase price payable upon the exercise of
an Option Right.
"OPTION RIGHT" means the right to purchase shares of Common Stock from
the Company upon the exercise of an option awarded hereunder.
"PARTICIPANT" means a Non-Employee Director (or a person who has
agreed to commence serving in such capacity) who is selected by the Board to
receive Awards under this Plan or who has elected to receive Voluntary Shares.
"PARTICIPATION AGREEMENT" means the agreement submitted by a Non-
Employee Director to the Secretary of the Company pursuant to which a Non-
Employee Director may elect to receive all or any portion of his or her Meeting
Fees or Retainer in the form of Voluntary Shares for a specified period in the
future.
"PERFORMANCE OBJECTIVES" means the performance objectives that may be
established by the Board pursuant to this Plan for Participants who have
received Awards.
2
<PAGE>
"PLAN" means the 1998 Equity Plan for Non-Employee Directors of Focal
Communications Corporation as set forth herein, as the same may be amended or
restated from time to time.
"RETAINER" means the portion of a Non-Employee Director's annual
compensation that is payable without regard to the number of board or committee
meetings attended or committee positions held, as determined by the Board from
time to time.
.
"RULE 16B-3" means Rule 16b-3 under the Securities Exchange Act of
1934, as amended or any successor rule.
"SUBSIDIARY" means any corporation, partnership, joint venture,
limited liability company, unincorporated association or other entity (each, an
"Entity") in an unbroken chain of Entities beginning with the Company if each of
the Entities other than the last Entity in the unbroken chain then owns stock or
other interests possessing 50 percent or more of the total combined voting power
of all classes of stock or other interests in one of the other Entities in such
chain.
"TERMINATION OF DIRECTORSHIP" means the time when a Participant ceases
to be a Director for any reason, including, without limitation, a termination by
resignation, removal, failure to be elected or reelected, death or retirement.
"VALUATION DATE" has the meaning set forth in Section 5(b).
"VOLUNTARY SHARES" has the meaning set forth in Section 5(a).
3. SHARES AVAILABLE UNDER THE PLAN. Subject to adjustment as
provided in Section 7 of this Plan, the number of shares of Common Stock issued
or transferred, plus the number of shares of Common Stock covered by outstanding
Awards and not forfeited under this Plan, shall not in the aggregate exceed
[300] shares, which may be shares of original issuance or shares held in
treasury or a combination thereof. If an Option Right lapses or terminates
before such Option is exercised, for any reason, the shares covered thereby may
again be made subject to Awards or issued as Voluntary Shares under this Plan.
4. OPTION RIGHTS. The Board may from time to time authorize Awards
to Participants of Options to purchase shares of Common Stock upon such terms
and conditions as the Board may determine in accordance with the following
provisions:
(a) Each Award shall specify the number of shares of Common Stock
to which the Option Rights pertain.
(b) Each Award of Option Rights shall specify an Option Price per
share of Common Stock, which shall be equal to or greater than the Market
Value per Share on the Date of Award.
3
<PAGE>
(c) Each Award of Option Rights shall specify the form of
consideration to be paid in satisfaction of the Option Price and the manner
of payment of such consideration, which may include (i) cash in the form of
currency or check or other cash equivalent acceptable to the Company, (ii)
by the tender to the Company of Common Stock owned by the Participant and
registered in the name of the Participant having an aggregate fair market
value on the date of exercise equal to the total Option Price, such fair
market value to be determined based on the Market Value per Share on the
date of exercise, (iii) by delivery of irrevocable instructions to a
financial institution or broker to deliver promptly to the Company sale or
loan proceeds with respect to the Common Stock sufficient to pay the total
Option Price, (iv) through the written election of the Optionee to have
Common Shares withheld by the Company from the Common Stock otherwise to be
received, with such withheld shares having an aggregate fair market value
on the date of exercise equal to the total Option Price of the shares being
purchased, and (v) any combination of the foregoing methods of payment.
(d) On or after the Date of Award of any Option Right, the Board
may determine that payment of the Option Price may also be made in whole or
in part in the form of shares of Common Stock that are subject to risk of
forfeiture or restrictions on transfer. Unless otherwise determined by the
Board on or after the Date of Award, whenever any Option Price is paid in
whole or in part by means of any of the forms of consideration specified in
this Section 4(d), the shares of Common Stock received by the Optionee upon
the exercise of the Option Right shall be subject to the same risks of
forfeiture or restrictions on transfer as those that applied to the
consideration surrendered by the Optionee; provided, however, that such
-------- -------
risks of forfeiture and restrictions on transfer shall apply only to the
same number of shares of Common Stock received by the Optionee as applied
to the forfeitable or restricted shares of Common Stock surrendered by the
Optionee.
(e) Any Award of Option Rights may provide for the deferred
payment of the Option Price from the proceeds of sale through a broker of
some or all of the shares of Common Stock to which the exercise relates.
(f) Successive Awards may be made to the same Participant
regardless of whether any Option Rights previously awarded to the
Participant remain unexercised.
(g) Each Award shall specify the period or periods of continuous
service as a Non-Employee Director by the Optionee that are necessary,
Performance Objectives, or other conditions that must be satisfied before
the Option Rights or installments thereof shall become exercisable, and any
Award may provide for the earlier exercise of the Option Rights in the
event of a change in control of the Company or other transaction or event.
(h) The term of an Option Right shall be set by the Board;
provided, however, that no Option Right awarded pursuant to this Section 4
-------- -------
may have a term of more than 10 years from the Date of Award.
4
<PAGE>
(i) Each Award of an Option Right shall be evidenced by a written
Stock Option Agreement, which shall be executed on behalf of the Company by
any officer thereof and delivered to and accepted by the Optionee and shall
contain such terms and provisions as the Board may determine consistent
with this Plan.
5. VOLUNTARY SHARES. Each Non-Employee Director shall be eligible
to elect to receive shares of Common Stock in accordance with the following
provisions:
(a) Prior to the commencement of the Company's Calendar Year (or
by such other date as may be specified by the Board), a Participant may
elect, by the filing of a Participation Agreement, to have up to 100
percent of his or her Meeting Fees and/or Retainer paid by the Company in
the form of shares of Common Stock in lieu of a cash payment (the
"Voluntary Shares"). Such Participation Agreement must, except as the Board
may otherwise provide, be filed as a one-time election for the applicable
Calendar Year. Unless the Director revokes or changes such election by
filing a new Participation Agreement by the due date therefor specified in
this Section 5(a), such election shall apply to a Participant for each
subsequent Calendar Year. Once an election has been terminated, another
election may not be made effective until the commencement of the next
subsequent full Calendar Year unless the Board shall have otherwise
provided.
(b) No later than ten (10) days following the end of an
Accounting Period (the "Issuance Date"), the Company shall issue to each
Participant who has made an election under Section 5(a), a number of
Voluntary Shares for the prior Accounting Period equal to (i) the amount of
such Director's Meeting Fees and Retainer for such Accounting Period that
such Director has elected to receive as Voluntary Shares, divided by (ii)
the Market Value per Share on the last day of each Accounting Period (the
"Valuation Date") with respect to which such Meeting Fees and/or Retainer
are payable. To the extent that the application of the foregoing formula
would result in the issuance of fractional shares of Common Stock, any such
fractional shares shall be disregarded, and the remaining amount of the
Retainer shall be paid in cash. The Company shall pay any and all fees and
commissions incurred in connection with the payment of the Voluntary Shares
to a Director.
6. TRANSFERABILITY.
(a) Except as may be otherwise determined by the Board, (i)
Awards and Voluntary Shares issued or granted under this Plan shall be
issued only to a Participant, (ii) Option Rights may be transferred by a
Participant only by will or the laws of descent and distribution, and (iii)
Option Rights may not be exercised during a Participant's lifetime except
by the Participant or, in the event of the Participant's legal incapacity,
by his guardian or legal representative.
(b) Any Award made under this Plan may provide that all or any
part of the shares of Common Stock that are to be issued or transferred by
the Company upon the exercise of Option Rights shall be subject to further
restrictions upon transfer.
5
<PAGE>
(c) To the extent required to satisfy any condition to exemption
available pursuant to Rule 16b-3, Voluntary Shares acquired by a
Participant shall be held by the Participant for a period of at least six
months following the date of such acquisition.
7. ADJUSTMENTS. The Board shall make or provide for such
adjustments in the (a) number of shares of Common Stock covered by outstanding
Awards or subject to elections to receive Voluntary Shares, (b) prices per share
applicable to Option Rights, and (c) kind of shares (including, without
limitation, shares of another issuer) covered thereby, as the Board in its sole
discretion may in good faith determine to be equitably required in order to
prevent dilution or enlargement of the rights of Participants that otherwise
would result from (x) any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company, (y)
any merger, consolidation, spin-off, split-off, split-up, reorganization,
partial or compete liquidation or other distribution of assets, or issuance of
rights or warrants to purchase securities or (z) any other corporate transaction
or event having an effect similar to any of the foregoing. In the event of any
such transaction or event, the Board may provide in substitution for any or all
outstanding Awards or Voluntary Shares to be issued under this Plan such
alternative consideration as it may in good faith determine to be equitable
under the circumstances and may require in connection therewith the surrender of
all Awards or Voluntary Shares so replaced. The Board may also make or provide
for such adjustments in the numbers and kind of shares specified in Section 3 of
this Plan as the Board may in good faith determine to be appropriate in order to
reflect any transaction or event described in this Section 7.
8. FRACTIONAL SHARES. The Company shall not be required to issue
any fractional shares of Common Stock pursuant to this Plan. The Board may
provide for the elimination of fractions, for the settlement thereof in cash or
for such other adjustments as the Board may deem appropriate under this Plan.
9. WITHHOLDING TAXES. To the extent, if any, that the Company is
required to withhold federal, state, local or foreign taxes in connection with
any payment made or benefit realized by a Participant or other person under this
Plan, and the amounts available to the Company for the withholding are
insufficient, it shall be a condition to the receipt of any such payment or the
realization of any such benefit that the Participant or such other person make
arrangements satisfactory to the Company for payment of the balance of any taxes
required to be withheld. At the discretion of the Board, any such arrangements
may include relinquishment of a portion of any such payment or benefit. The
Company and any Participant or such other person may also make similar
arrangements with respect to the payment of any taxes with respect to which
withholding is not required.
10. CERTAIN TERMINATIONS OF DIRECTORSHIPS.
6
<PAGE>
(a) Notwithstanding any other provision of this Plan to the
contrary, in the event of a Termination of Directorship by reason of death
or disability, or in the event of hardship or other special circumstances,
of a Participant who holds an Option Right that is not immediately and
fully exercisable or any Award as to which the substantial risk of
forfeiture or the prohibition or restriction on transfer has not lapsed,
the Board may in its sole discretion take any action that it deems to be
equitable under the circumstances or in the best interests of the Company,
including, without limitation, waiving or modifying any limitation or
requirement with respect to any Award under this Plan.
(b) If a Non-Employee Director becomes an Employee while
continuing to serve as a Director, that fact alone shall not result in a
Termination of Directorship or otherwise impair the rights such Director
may have under this Plan, including, without limitation, the rights such
Director may have under any Award outstanding under this Plan, but such
Director shall no longer be eligible to receive any further Awards or
Voluntary Shares under this Plan.
11. ADMINISTRATION.
(a) ADMINISTRATION BY THE BOARD; DELEGATION. This Plan shall be
administered by the Board, which may from time to time delegate all or any
part of its authority under this Plan to a committee or subcommittee of not
less than two Directors appointed by the Board who are "non-employee
directors" within the meaning of that term as defined in Rule 16b-3. To the
extent of any delegation by the Board under this Plan, references in this
Plan to the Board shall also refer to the applicable committee or
subcommittee. The majority of any such committee or subcommittee shall
constitute a quorum, and the action of a majority of its members present at
any meeting at which a quorum is present, or acts unanimously approved in
writing, shall be the acts of such committee or subcommittee.
(b) ADMINISTRATIVE POWERS. The Board shall have the power to
interpret this Plan, the Option Rights and elections to receive Voluntary
Shares, and the agreements pursuant to which the Option Rights and the
Voluntary Shares are awarded and issued (including Participation
Agreements), and to adopt such rules for the administration,
interpretation and application of this Plan, and such agreements as are
consistent therewith and to interpret, amend or revoke any such rules. Any
Award under this Plan need not be the same with respect to each Optionee.
12. AMENDMENT, SUSPENSION, TERMINATION AND OTHER MATTERS.
(a) This Plan may be wholly or partially amended or otherwise
modified, suspended or terminated at any time or from time to time by the
Board. However, without further approval of the stockholders of the
Company, no action of the Board may, except as provided in Section 7 of
this Plan, increase the limits imposed in Section 3 on the maximum number
of shares of Common Stock which may be issued under this Plan, and no
action of the Board may be taken that would otherwise require stockholder
approval as a matter of applicable law or the rules of any U.S. stock
exchange, including the NASDAQ-National
7
<PAGE>
Market System, on which the Common Stock may be listed for trading or
authorized for quotation. No amendment, suspension or termination of this
Plan shall, without the consent of the holder of an Award, alter or impair
any rights or obligations under any Award theretofore granted, unless the
Award itself otherwise expressly so provides.
(b) The Board may make under this Plan any Award or combination
of Awards authorized under this Plan in exchange for the cancellation of an
Award that was not made under this Plan.
(c) Except as provided in Section 12(b) of this Plan, the making
of one or more Awards to a Non-Employee Director under this Plan shall not
preclude the making of Awards to such Non-Employee Director under any other
stock option or incentive plan previously or subsequently adopted by the
Board, nor shall the fact that a Non-Employee Director has received one or
more awards under any other stock option or incentive plan of the Company
preclude such Non-Employee Director from receiving awards under this Plan.
13. TERMINATION OF THE PLAN. No further awards shall be made under
this Plan after the passage of 10 years from the date on which this Plan is
first approved by the stockholders of the Company.
14. EFFECTIVE DATE. The effective date of this Plan shall be the
date immediately prior to the date on which the Company consummates its Initial
Public Offering.
8
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
1. PURPOSE.............................................................. 1
2. DEFINITIONS.......................................................... 1
3. SHARES AVAILABLE UNDER THE PLAN...................................... 3
4. OPTION RIGHTS........................................................ 3
5. VOLUNTARY SHARES..................................................... 5
6. TRANSFERABILITY...................................................... 5
7. ADJUSTMENTS.......................................................... 6
8. FRACTIONAL SHARES.................................................... 6
9. WITHHOLDING TAXES.................................................... 6
10. CERTAIN TERMINATIONS OF DIRECTORSHIPS................................ 6
11. ADMINISTRATION....................................................... 7
12. AMENDMENT, SUSPENSION, TERMINATION AND OTHER MATTERS................. 7
13. TERMINATION OF THE PLAN.............................................. 8
14. EFFECTIVE DATE....................................................... 8
</TABLE>
<PAGE>
EXHIBIT 10.10
AMENDMENT NO. 1 TO
EXECUTIVE EMPLOYMENT AGREEMENT AND CONSENT
------------------------------------------
This Amendment No. 1 to Executive Employment Agreement and Consent (this
"Amendment") is entered into as of this 21st day of August, 1998, between Focal
Communications Corporation, a Delaware corporation (the "Company"), Renee M.
Martin ("Executive"), and Madison Dearborn Capital Partners, L.P., Frontenac VI,
L.P. and Battery Ventures III, L.P. (collectively, the "Stockholders").
Capitalized terms not otherwise defined in this Agreement are used herein with
the meanings assigned to such terms in the Stock Purchase Agreement, dated
November 27, 1996, by and among the Company and the other parties thereto (as
amended, the "Stock Purchase Agreement") or the Executive Employment Agreement
(as hereinafter defined), as the case may be.
WHEREAS, the Company and the Executive wish to amend the provisions of the
Executive Employment Agreement, dated as of March 20, 1998, by and between the
Company and the Executive (the "Executive Employment Agreement") as provided in
paragraph 1 of this Amendment;
WHEREAS, the Stockholders collectively own all of the Institutional
Investor Stock; and
WHEREAS, the Stockholders wish to consent to the amendment (as provided in
paragraph 1 of this Amendment) for purposes of the Stock Purchase Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties to this Amendment
hereby agree as follows:
1. Amendment to Executive Employment Agreement. Pursuant to paragraph
-------------------------------------------
5(g) of the Executive Employment Agreement, the definition of "Noncompete
Compensation" set forth in the fourth sentence of paragraph 3(c) of the
Executive Employment Agreement is hereby amended and restated to read in its
entirety as follows:
"Noncompete Compensation" shall consist of 100% of the
salary that Executive received under paragraph 1(d)
above as compensation from the Company and its
Subsidiaries immediately prior to Termination
(Executive's "Previous Salary") together with the
continuation of the medical benefits that the Company
provided to Executive immediately prior to Termination
(Executive's "Previous Benefits"); provided that if at
any time during the Noncompetition Period Executive
obtains other employment (i) with comparable medical
benefits to Executive's Previous Benefits, Executive's
Noncompete Compensation shall during the period of such
employment not include the continued provision of
medical benefits, and (ii) with a salary exceeding 100%
of Executive's Previous Salary, Executive's Noncompete
Compensation shall during the period of such
<PAGE>
employment be reduced (but not below zero) by the amount
of such excess."
2. Consent. For all purposes of the Stock Purchase Agreement (including,
-------
without limitation, Section 4C(xii) thereof), each of the Stockholders consents
to the amendment set forth in paragraph 1 of this Amendment.
3. Counterparts. This Amendment may be executed in multiple counterparts,
------------
each of which shall be an original and all of which taken together shall
constitute one and the same agreement.
4. Descriptive Headings. The descriptive headings of this Amendment are
--------------------
inserted for convenience only and do not constitute a part of this Amendment.
[remainder of page intentionally left blank]
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
_____________________________________________________
Renee M. Martin
FOCAL COMMUNICATIONS CORPORATION
By:__________________________________________________
Its:____________________________________________
MADISON DEARBORN CAPITAL
PARTNERS, L.P.
By: Madison Dearborn Partners, L.P., its General
Partner
By: Madison Dearborn Partners, Inc., its General
Partner
By:__________________________________________________
Its:____________________________________________
FRONTENAC VI, L.P.
By: Frontenac Company, its General Partner
By:__________________________________________________
Its:____________________________________________
BATTERY VENTURES III, L.P.
By: Battery Partners III, L.P., its General Partner
By:__________________________________________________
Its:____________________________________________
3
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